Softer US data sends USD down and gold up amid crypto ‘liquidity crunch’

[MongiIG]

A slowdown in US retail sales data has led to a drop in the US dollar, sending the EUR/USD trade comfortably back up above parity.

 Jeremy Naylor | Writer, London | Publication date: Wednesday 09 November 2022 

This drop in USD has helped gold which also seemed to receive a leg up as cryptos fell on reports of a ‘liquidity crunch’. That phrase was used by the CEO of the crypto currency exchange, Binance as it agreed a merger with another large exchange FTX.

 

USD falls

The dollar fell yesterday afternoon as the US Redbook index rose at its slowest pace since March 2021. Now the Redbook is a weekly index that measures same store sales. In other words, it's a retail sales monitor. Yesterday it rose by 7.6% during the first week of November following a 9.7% increase in the previous week.

Now it hasn't showed a contraction. But what this has done is it's given an extra steer lower to the us dollar. And indeed yesterday at the low point, the dollar, we had the lowest print on the US dollar basket since 13 September this year.

Currency market little changed this morning on from the lows that we had yesterday as the market awaits the results of the mid-term elections.

EUR/USD

I want to show you what's been happening with the EUR/USD trade because significantly we are now quite a nice space above this parity line, the blue dotted line here. Not quite as high as we were intraday back on the 26th of October but very close to levels not seen now since the mid-September period. So something like around about eight-week highs for the EUR/USD trade.

What this means for gold

Now, what this has done is this has steered money into precious metals, and you can see yesterday was the second substantial rise we've seen in the last four days for the price of gold, consolidating at these recent highs.

Yesterday we had the highest intraday print seen since the 6th of October on the price of spot gold. Spot silver though has managed to break the highs that we had back on the 4th of October and is now trying to tempt traders to trade above the 200-day moving average, this line here. This is the highest print we've seen for silver since the 22nd of June this year. So silver is an outperformer in the markets.

Cryptos

Now that move into gold also coinciding yesterday with a move out of cryptocurrencies. Now there's an extra story here with this crypto space. Bitcoin breaking support falling below 17,500 at one point yesterday for the first time since December 2020. Another crypto has followed.

The cryptocurrency market tumbled after Binance and FTX, the world's two biggest crypto exchanges, agreed to merge to address what it's called a liquidity crunch in this particular area of the market. But interestingly as we see money coming out of crypto it's going into gold.

There has always been this tacit implication that crypto is stealing some of gold's allure. So, if we see this continuation of this move lower for crypto we could well see some more trade higher in gold. Ether not quite as low as Bitcoin, but nonetheless on the way down.