US Dollar may extend losses due to US/China relations

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Wall Street stocks ended on an upbeat note, with the Dow Jones, S&P 500 and Nasdaq indices closing 0.43, 0.74 and 1.67 percent higher, respectively. Technology stocks led the way, which helps explain why the tech-leaning Nasdaq index was the best performer relative to its peers. The so-called FAANG group – Facebook, Apple, Amazon, Netflix and Google – were all up for the day.

Gold prices hit an all-time high at $1945.63 per ounce on Monday. The precious metal’s appeal has been rising in tandem with future inflation expectations from both monetary and fiscal stimulus policies. See my weekly XAU/USD outlook here for more.

US Senate Republicans also revealed more details about another coronavirus relief bill which includes an additional $1,200 stimulus check. This may have contributed to gold’s rally if the news put a premium on anti-fiat hedges. Follow me on Twitter @ZabelinDimitri for more updates on key geopolitical risks impacting markets.

Foreign exchange markets also reflected a risk-on tilt, with the haven-linked US Dollar and anti-risk Swiss Franc as the session’s biggest losers. The Swedish Krona was crowned champion, with the Norwegian Krone and Euro not far behind. The latter’s rally – as mentioned below – appears to be the result of optimism about greater EU integration at a time when the Eurozone’s existence was standing on the precipice.

A relatively sparse data docket puts macro-fundamental themes in the spotlight. Persistent optimism about economic stabilization and stimulus from the Fed and federal government may compound USD weakness. Consequently, this may then push US Dollar-denominated commodities higher and put a premium on cycle-sensitive assets like the Australian and New Zealand Dollars. This dynamic may also push gold prices higher.

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US-China geopolitical tensions continue to rise amid the coronavirus pandemic that widened the rift in what was an already-strained relationship. After closing the Chinese consulate in Houston, Beijing responded by alerting American diplomats in Chengdu that they have 72 hours to clear the residence. Despite these developments – and what that could lead to – markets appeared to be unbothered.

Propelled in part by US Dollar weakness, EUR/USD has surged over 9 percent since mid-May and is now trading at September 2018-highs. The next obstacle to clear may be the September swing-high at 1.1815, which also marked the start of what would become a multi-month downtrend. Looking ahead, USD weakness, combined with Euro strength – following the successful EU summit – may push EUR/USD higher.

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