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Gold Down Ahead of Yellen Testimony

Daily Analysis - 11/07/2017

Bullion Prices Inch Towards 4-Month Low

gold-falls-out-of-favour


Gold fell in Tuesday morning trade as investors await Federal Reserve Chair Janet Yellen's semi-annual congressional testimony on Wednesday. Prices mounted a pullback from a four month low reached yesterday, but have since run out of momentum amid a firmer US dollar.

Hawkish Federal Reserve Looms Large Over Gold Prices


Investor attention is focused on Fed Chair Janet Yellen’s two-day testimony set to be presented to the US Senate and House of Representatives during the semi-annual monetary policy report. Based on the last Federal Open Market Committee minutes released on July 5th, Yellen is likely to testify that the Fed will try to reduce its mortgage-backed securities and Treasury bond holdings starting in August.

The FOMC has also indicated that another interest rate hike might happen this year, especially given the latest employment data. Gold is highly sensitive to rising rates as it increases the opportunity cost of holding an asset that earns no interest. In the meantime, the metal remains in a strong intermediate-term downward trend, with the selloff likely to accelerate in the event of a convincing close below the key psychological level of $1200.

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US Consumer Credit Climbs to 7-Month High


After the weakest quarterly expansion in six years during the first three months of 2017, consumer credit in the United States grew at its fastest pace in seven months in May, recording a sharp rebound. Consumer credit rose at a seasonally adjusted annual pace of 5.80% to notch growth of $18.40 billion, managing to outpace economist forecasts of $13.50 billion for the period according to the Federal Reserve.

Revolving credit such as credit card debt soared 8.70%, while non-revolving credit, which includes student and auto loans, rose 4.70%. In addition, the April figure of a weak $8.20 billion gain was revised higher to a more respectable $12.90 billion. Consumer borrowing is a key indicator of consumer spending, which accounts for almost 70.00% of aggregate US economic activity. S&P 500 futures are stuck in a narrow range, with the index last seen trading around the 2425-mark.

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German Trade Surplus Notches another Expansion


Following a significant narrowing of the trade balance a month earlier, German exports grew more than forecast in May, outpacing strong gains in imports while contributing to a widened trade surplus in Europe's largest economy. The Federal Statistics Office reported a seasonally adjusted 1.40% increase in exports - the fifth straight month of gains, while the value of imports increased 1.20%, pushing May’s trade surplus to EUR 20.30 billion from a revised EUR 19.70 billion in April.

The current account surplus, which tracks the flow of goods, services and investments, jumped to EUR 17.30 billion from a revised April figure of EUR 14.90 billion. The surprisingly strong trade figures underline the inherent strength in the German economy, potentially boosting Chancellor Angela Merkel as she seeks a fourth term in upcoming elections.  The DAX 30 index ended Monday mostly flat, with futures moving towards 12480 in early European trade.

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Australian Business Conditions Improve Despite Weak Consumer Backdrop


A widely-followed measure of Australian business conditions surged to its highest since early 2008 in June as profits and sales improved across a range of industries. The National Australia Bank surveyed over 400 firms to put together its index of business conditions which climbed 4 points to +15 in June, significantly higher than the long-run average of +5. The NAB's gauge of business confidence also rose to +9 from +8 in May, again topping the long-run average.

The latest run of upbeat data, including better than anticipated PMI figures earlier in the month, augurs well for the economy, which registered tepid first quarter growth of just 0.30%. However, weak wage growth and record household indebtedness could be cause for concern for business conditions moving forward.  AUDUSD is up in early Tuesday trade to currently hover just below strong resistance sitting at 0.7630.

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