Even though the S&P 500 still has given me a clear overbought signal, it looks like the momentum to the upside is slowing at these elevated levels near 2430. Oil is really taking it on the chin today, down 4.75%.
Thanks to soft U.S. economic data of late, expectations about an aggressive rate hiking cycle by the Fed has diminished. This has weighed heavily on the U.S. dollar, underpinning the likes of the euro/U.S. dollar (EUR/USD) currency pair, gold and undermining the likes of the USD/JPY and USD/CHF.
The U.S. dollar is lower across the board versus major currencies. The U.S. non-farm payrolls (NFP) grew by 138,000 jobs in May short of the 180,000 forecasted and there were downward revisions to the two previous months. The employment trend continues to be strong as evidenced by the fall in the unemployment rate to its lowest since 2001, 4.3%. The market is still pricing in a 91.2% of a rate hike in June with U.S. Federal Reserve raising interest rates by 25 basis points to the 100–125 basis points range.
Gold has struggled so far this week after enjoying a two-week winning streak in May. Up until now, the buck-denominated metal has been supported above all by a soft US dollar. But with the greenback showing signs of life after Thursday’s release of strong ADP employment figures, expectations about a June rate hike have risen closer to 100% again. Those expectations would be further cemented if we have a strong nonfarm payrolls report today. As a result, the dollar may rally which could undermine the precious metal.
If we look at gold from the long-term perspective, it’s clear that it hasn’t really done much in the recent months—it’s trading in the $1,200-$1,250 range, which is where it was in the first half of 2016, first half of 2015, for most of 2014 and in the second half of 2013.