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Market Uncertainty Driving Both Gold and USD Higher

FOREX
  • Since the start of the year, the surge in geopolitical risk has led to a strong performance in ‘safe havens’ USD and Gold.
  • Correlations between Gold and DXY index (daily returns) have been soaring, with the 3M correl bouncing back to positive territory in the past month (see chart).
  • A simultaneous rise in both USD and Gold has historically been perceived as a sign of market stress by investors.
  • Previous spikes in Gold/DXY correlations generally followed economic or/and market shocks (Covid, Brexit, Eurozone crisis…).
  • Risk off environment has been mainly driven by the renewed geopolitical tensions with Western allies preparing for new sanctions.
  • USD index broke above the psychological 100 level in today’s trading session; next level to watch on the topside stands at 100.5560.

Source: Bloomberg/MNI.

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