It Is About the Dollar, Euro and US

Comments made by European Central Bank President Mario Draghi confirmed what many analysts expected; that the ECB would keep the current interest rate level unchanged. Draghi also vowed that the current policy of asset purchases would continue through the end of the year.

In a written statement, President Draghi said, “If the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program in terms of size and/or duration.”

As reported by the Independent, “The European Central Bank left its ultra-easy monetary policy stance unchanged as expected on Thursday, keeping rates at record lows and even leaving the door open to more asset buys if the outlook worsens.”

Investing.com reported that the “European Central Bank (ECB) president Mario Draghi underlined the euro area monetary authority’s dovish stance on Thursday, stressing the need for “very substantial” accommodation, while indicating that future discussions about quantitative easing (QE) should take place in the fall.”

This announcement comes after Draghi alluded to the potential of a policy tightening last month.

The net result of these actions was that the Euro-dollar gained approximately 1% of value over the U.S. dollar. The dollar index, which includes the Eurodollar as well as a basket of other currencies, lost a little over half a percent on the day. This dynamic change in currency values greatly affected commodities that are paired with dollars such as gold.

As of 4 o’clock EDT gold futures basis the most active August contract is trading at $1243.40, up $1.40. Given the underlying weakness of the U.S. dollar it is evident that some market participants use this event to take profits. This can be seen when we look at spot gold prices which are currently at $1243 an ounce, up two dollars on the day.

Based upon the Kitco Gold Index (KGX), today’s two-dollar gain is a combination of a weak U.S. dollar contributing $6.95 in value, and selling in the market accounting for a loss of $4.95.

Wishing you as always, good trading,