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USD: Low risk from the data side today, with just house price data released at 13:00 GMT. It’s not a market mover, but of interest given the weaker new home sales data seen yesterday.

Idea of the Day

The main standout from yesterday’s trade was the push higher in the gold price, which put in the biggest one day gain for 21 months, rising 3.1%. The 1,300 level had proved to be touch resistance on a number of previous occasions, so the break higher enticed buyers and for the moment, spot gold is attempting to hold above the 50-day moving average which currently stands at 1,330.   One of the factors supporting the gold price more recently has the fall in global real interest rates, in other words the amount that investors can earn over and above inflation in the bond market.

When this falls, then traditionally the gold price has risen, as low (or zero) real rates mean investors are giving up less to put into a non-yielding asset such as gold.  The 3-month rolling correlation of gold vs. global real interest rates is currently at -0.89, the most negative for nearly two years.   This shows the extent to which the fate of gold is tied to bond yields which are in turn tied to expectations of the withdrawal of the Fed’s stimulus program.

Opinion:  Gold price to turn around?

Latest FX News

JPY: In the wake of the Upper House election results, the yen was generally firmer which went against the grain of some thinking that a strong showing for the LDP would be yen negative. As we said yesterday, the third arrow is the least yen negative (if at all) of Abe’s plans.

USD:  The softer housing data on Monday maintained the more cautious tone to the dollar and will keep speculation strong as to whether the Fed is able to start reducing bond purchases as early as the September meeting.

NZD: Performing well overnight, buyers enticed in by the move above the high made on Friday and this puts NZDUSD at a 5 week high, having pushed above the 0.80 level in Asia trade.

More:  See how to trade  the Chinese Flash Manufacturing PMI with AUD/USD.