Johnson takes a step forward, Strong dollar and gold - Why ?

21 Agu 2019

The growing strength of the United States dollar has already fed up with a lot of things, Trump and American exporters to traders and analysts who have bet and continue to bet on its decline. Quite a long time ago, we have turned to dollars bears and also not enthusiastic about its unwillingness to decline. So it is time to find out the reasons for its strength.

According to the dollar’s reaction to the Fed’s rate cut at the last FOMC meeting, it’s not about US interest rates. They are not that high to provoke an influx of speculative capital.

“It’s natural for the dollar to be strong,” said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Trump is waging a trade war against economies that earn a surplus from the U.S. and making the strong American economy even stronger.” On the one hand, investors are scared so they “hide” in US government bonds, which stimulates the dollar demand and strengthens it. On the other hand, Trump's protectionist actions help the US economy, to the detriment of partner countries, which again has a positive effect on the dollar value ( in response to US trade aggression, other countries devalue their currencies which artificially strengthens the dollar).

According to the Bigmack Index, the dollar is one of the most overvalued currencies in the world. So we continue to recommend selling the dollar, especially ahead of Powell's Friday speech at the Jackson Hole Symposium.

In this light, the legendary investor and Mobius Capital Partners LLP founder. Mark Mobius encouraged all investors to buy gold with any marks. He believes the reduction of interest rates by the Central Banks, making gold an increasingly attractive investment target. It becomes a reliable basis for long-term gold growth.

As for our position for gold, it is still unchanged: intraday oscillator trading without obvious preferences, that is, we buy in the oversold area and sell in the overbought one (as a reference, classic RSI oscillators can be used or more advanced versions of oscillators developed our experts for a deeper analysis of price dynamics).

And finally, we note the first hints of possible progress in the agreements between the EU and the UK. This is the first public attempt by Boris Johnson to engage the EU in the negotiation process to develop a new version of the agreement on the withdrawal. And although this is only the first uncertain step towards. So we only strengthened our recommendation to buy the pound from current prices.