Gold Drops this Week, as the Dollar Gains Ground

Gold prices moved lower this week, dropping approximately $20 per ounce after hitting a high of 1,356 early in the week.  Prices did not make a lower low for the week, and remained above support near the 10-week moving average at 1,330.  A break of the 1,300 level would lead to a test of support near an upward sloping trend line that comes in near 1,270.  Resistance is seen near a downward sloping trend line that comes in near 1,361.  Weekly momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. The weekly fast stochastic also generated a crossover sell signal which points to lower prices.

ECB Shifting Focus to Rate Hikes as QE Nears End

The ECB will begin phasing out QE this year and indeed, officials have already moved the goal post as hawks like Weidmann start to focus on rate hike scenarios for 2019. Against the expected policy path rates will likely resume the uptrend going forward and 2019 is likely to be very much about rising yields, although the ECB’s commitment to maintaining the stock of assets means redemptions will keep the ECB in the market and reduce the impact particularly for peripherals and especially as overall debt levels continue to trend lower across the Eurozone, which means net supply is gradually being reduced. The Bundesbank already asked the ECB to add more agency debt to the pool of assets eligible for QE purchases in a bid to ensure sufficient supply for the remainder of the QE program, but if debt levels continue to fall and with it net supply the ECB has to be careful not to exceed its allowed market share.

Fed’s Harker expects two more rate hikes this year

Fed’s Harker expects two more rate hikes this year. The Philly Fed president explained it was the firming in inflation that caused him to revise his rate projection. And in his written remarks this afternoon on U.S. Business Dynamism in Decline, he indicated he expects inflation to reach and exceed the 2% target by the end of 2019. He also thinks the jobless rate can fall to as low as the 3.5% range next year. GDP growth, however, is projected at 2.6% this year and 2.4% next.