Macro Overview On May 18, 2025, the international financial markets exhibited a significant divergence characterized by falling gold and rising oil prices. Spot gold plunged 2.45% to close at $4,538 per ounce, with a weekly decline of 3.75%, while gold futures similarly tumbled by 2.7%. In contrast, Brent crude and West Texas Intermediate (WTI) crude posted weekly gains of 7.84% and 10.48%, closing at $109.26 and $105.42 per barrel, respectively. This divergence stems from the interplay between Middle Eastern geopolitical tensions and macroeconomic fundamentals.
Ongoing escalation in U.S.-Iran tensions, including a drone attack on a UAE nuclear power plant and Saudi Arabia intercepting incoming drones, coupled with former President Trump's hardline stance and discussions of military options against Iran, have heightened energy supply risks. However, surging oil prices have intensified inflation concerns. With the U.S. Producer Price Index (PPI) rising 6% year-over-year in April, market expectations for a Federal Reserve rate hike in December have increased from 14.3% to 49.5%.
A strong U.S. dollar (with the index reaching 99.21) and surging Treasury yields (the 10-year yield hitting 4.599%) have created a dual pressure, significantly increasing the holding cost for gold as a non-yielding asset and prompting a shift of funds into interest-bearing assets. In the short term, gold's trajectory remains tied to the Middle East situation: an escalation in conflict would reinforce rate hike expectations, further pressuring gold prices downward, while a diplomatic breakthrough could trigger a rebound. Currently, market analysts and retail traders show significant divergence in sentiment, with the traditional "safe-haven" logic for gold being temporarily overshadowed by interest rate dynamics.
U.S. Dollar Index Regarding the U.S. Dollar Index, prices overall showed an upward trend last Friday. The intraday high reached 99.296, the low was 98.823, and it closed at 99.261. Reviewing Friday's price action, the index continued its momentum shortly after the opening, primarily because it had firmly established itself above the weekly and monthly resistance levels the previous day, leading to a sustained surge. The U.S. Dollar Index currently remains in a bullish phase. In the short term, key support lies in the 99.00-99.10 range. A subsequent pullback to this area is viewed as an opportunity for the uptrend to continue, with short-term resistance targeted around the 99.40-99.60 zone.
Strategy: Consider long positions in the Dollar Index around 99.00-10, with a 5-point stop-loss, targeting 99.40-99.60.
Euro-Dollar (EUR/USD) For the EUR/USD pair, prices overall declined last Friday. The intraday low was 1.1616, the high was 1.1672, and it closed at 1.1623. Reviewing Friday's market action, prices came under immediate selling pressure after the opening, primarily because they had already broken below the weekly support area on Thursday, and the overall bias remained bearish, leading to continued weakness. From both weekly and daily chart perspectives, prices are in a bearish phase. Additionally, in early Monday trading, prices touched the monthly support area, warranting caution for a potential minor correction before resuming downward pressure. Initial resistance is temporarily observed around the 1.1640-50 area. A subsequent retest of this zone is expected to invite renewed selling pressure. Intraday, focus is first on the 1.1610 area, with a break below potentially targeting 1.1580. The overall bias remains bearish.
Strategy: Consider short positions in EUR/USD around the 1.1640-50 range, with a 40-pip stop-loss, targeting 1.1610-1.1580.
Key Financial Data and Events to Watch Today (Monday, May 18, 2025) 1. TBD G7 Finance Ministers and Central Bank Governors Meeting 2. 09:30 China 70-City New Home Prices Monthly Report 3. 10:00 China Year-on-Year Retail Sales for April 4. 10:00 China Year-on-Year Industrial Output for April 5. 22:00 U.S. NAHB Housing Market Index for May
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