Gold
Fundamental analysis
This week saw the price of gold come under pressure as the U.S 10-year Treasury yields rose along with the Dollar index. The strength of the Dollar is important in relation to the yellow metal because a stronger Dollar weakens the appeal of gold as it becomes more expensive for new buyers to enter the market. Coupled with these fundamentals, the U.S Federal Reserve also took a strong hawkish tone this week which further increases the likelihood that the U.S Central Bank will hike interest rates aggressively to fight rising inflation.
Technical Analysis
In terms of technical analysis, gold is still locked within a tight range between $1 900 and $2 000, which means we don’t really have a concrete direction until we break above or below this range in an impulsive manner. However, the current price action is showing us how we recently approached the top of this range around the $ 1 998 area in the form of a corrective ascending channel and broke out of the channel in an impulsive manner, followed by a bear flag continuation pattern, which gives us insight that the next likely move for price is a further downward push towards the bottom of the range around the $ 1 900 area.
Oil
Fundamental analysis
This week came with an announcement by the International Monetary Fund, where they essentially cut their global economic growth forecast for the year. This forecast is in line with the current global outlook as China, the world’s largest importer of oil, announced a new round of measures including daily coronavirus testing from Friday, adding to strict measures to curb the latest outbreaks. This means lower demand for oil and as such a decrease in the price. The burden of slower growth and decreased demand is however balanced out by the prospect of the European Union imposing a ban on Russian Oil which would further tighten the supply over the longer term.
Technical Analysis
In terms of technical analysis, the price of oil is still ranging between the high of $124 and the low of $92. The current price action is forming a correction in the form of a falling wedge after moving upwards in an impulsive manner, which is an indication that the probable move from here onwards is another impulsive move to break above the $109 area, and this is supported by the long term fundamentals mentioned above, prolonging the theme of a decreased supply versus the global demand.
Cryptocurrency
Fundamental analysis
Bitcoin has been testing early buyers of the current range it’s been held inside, by falling 7% since 21 April 2022. This downward correction seems to look like a classic play by marker makers to purge the sell-side liquidity before triggering an impulsive uptrend. This downward retracement is likely to find support around the $40 000 area where investors could enter the market at this discounted level. Market participants can expect more accumulation on this recent dip, leading to a quick recovery that could be the catalyst for the price to move towards the yearly open at $46 198.
Technical Analysis
In terms of technical analysis, the short term outlook might look bearish at first glance to the untrained eye, but through price action, we can see that the current downward move can be categorised as a retracement where further buying is likely to take place at these discounted levels as price bounces for a third time on the trendline. However, if the price breaks below the $40 100 support level we could see BTC taking a dive all the way to the $34 752 area. An impulsive move below this significant support area will create a lower low and invalidate the bullish analysis we currently hold.
The Optimal Play
Fundamental analysis
This week saw the Dollar Index reach the psychological boundary of 101.00, as risk appetite continued to weaken amid increased geopolitical tensions and higher U.S yields. Substantial buying interest was seen early this week on the back of the speech made by FED chair Jerome Powell at the IMF event where a hawkish stance was expressed. In essence, Mr Powell reiterated a tighter monetary policy in an attempt to grapple with record-high inflation levels, which confirms a 50 basis point rate hike in the month of May. The long term view is still firmly in line with a stronger Dollar because The geopolitical landscape still shows no sign of a diplomatic attempt to negotiate a solution to the conflict in Ukraine.
Technical Analysis
The price action is firmly supporting the underlying fundamental outlook mentioned above. In terms of patterns, we can see a clear impulsive break out of the range in the month of March. Since then, the index has found strong support above this range and continues its move on upward in the form of an expanding channel printing higher highs and higher lows, which is indicative of a strong and healthy trend toward the 2022 highs past the 101.00 barrier.
The case for Dollar exposure to one’s portfolio amid these volatile market conditions cannot be overstated. Since the beginning of the war in Ukraine, coupled with the general risk-off sentiment that investors currently have, the greenback has strengthened week after week, and will continue to do so until the global sentiment shifts towards a sentiment that is more conducive for riskier investments. To learn more about how you can diversify your portfolio and gain dollar exposure through an investment that can protect and grow your money, kindly contact us and one of our FSCA approved financial advisors will walk you through how you can go about this.
