USD Nearing Resistance Amid New Geopolitical Tensions

26 Sep 2017 11:58 AM

The US Dollar Index managed to rise since the beginning of the week, despite the latest geopolitical tensions between the US and North Korea.

North Korea’s Foreign Minister said that the international community should clearly remember it was the US that declared war on North Korea.

He also said that since the US declared war, we have every right to take countermeasures, threatening to shot down any US bomber even if its out of North Korea’s airspace.

Such tensions has led to a notable rise in all safe haven assets, including Gold, Silver, Japanese Yen and the Swiss Franc, as the threat language has reached a level that we have never seen before.

USD Index Nearing Key Resistance

The US Dollar Index is now higher for the third week in a row, one we have not seen since February of this year, reaching as high as 92.80 earlier this morning.

The rally comes on the back of the latest Federal Reserve decision to start reducing its 4.5T Balance Sheet. However, the current rally might not continue for a long time, especially as the index is approaching a key resistance area which stands at 93.0.

As long as the index continues to trade below that resistance, the bearish outlook is here to stay, unless the index manages to close this week above that resistance. If so, this means that the upside retracement is likely to extend for some time.

Gold Above 1300 Once Again

Gold prices managed to stabilize well above 1295 support area for the second week in a row, leading to another bounce to as high as 1315 earlier this morning.

However, the bounce comes right after North Korea’s Foreign Minister remarks. Earlier today, Gold eased some of yesterday’s gains declining all the way back to 1306 until this report is released.

However, looking at the weekly chart, Gold is trading within an uptrend channel and Gold peaked right from the upper band of the channel.

Yet, 1295 remains the key for now, as long as it stays above that support, this might mean that the short term downside retracement is over and the uptrend is likely to resume over the coming days.

On the contrary, only a weekly close below 1290 would clear the way for further declines, probably toward the 1260, which represents its lower band of the uptrend channel.

Will The Market Ignore The Tensions?

This is something that we need to asses over the coming hours. The US equities closed lower yesterday, while the most of the Asian equities managed to rise only at the end of the session.

In addition, European equities are mixed, with FTSE100, IBEX35 and SMI are lower, while EuroStoxx, DAX  and FTSEMIB are slightly higher.

The White House denied North Korea’s claims, saying that the US did not declare war on any country. Yet, Donald Trump keeps on threatening North Korea over twitter.

As long as there is no action whether from the US and/or North Korea, equities are likely to stabilize once again in the coming days.

Edited by:

Nour Eldeen Al-Hammoury

Market Analyst

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