FX.co ★ Clash of the Titans: The dollar king goes backstage, shining gold on the main stage. Bull trap or sustainable trend?

The markets are finding it difficult to decide due to the lack of a strong catalyst, the major currency pairs continue to trade within recent levels. The dollar never managed to regain its status as the king of growth, despite strong data on the labor market, the expected record inflation, the hawkish position of the Federal Reserve and the growth in the yield of treasuries. It would seem, well, what else is needed to return to the upward dynamics?

At the end of last week, the dollar index lost 1.8% of its value, now it continues to trade around the 95.60 mark.

Nevertheless, economists and traders do not lose hope for the growth of the dollar, believing that it will still manifest itself. The current decline is just a correction that will be short-lived, market players comment on the situation.

At least the US currency has fundamental reasons for growth. Judging by the rhetoric, the Fed plans to overtake other major world central banks in tightening monetary policy. Moreover, the divergence of the curves reflecting the dynamics of monetary policies will begin to increase over time. This is one of the biggest factors in favor of further strengthening of the dollar, but with a caveat. As a result of these actions, the Fed needs to quickly cope with rising inflation.

There is another scenario. First, the Fed may eventually lag behind in the process of curbing accelerating inflation. Secondly, the central bank may set itself the task of not harming the recovery process of the US economy. The balance between economic growth and the cycle of monetary policy tightening will be disrupted, and the dollar will be under pressure again.

The USD/JPY pair feels quite comfortable now, climbing and staying above the 115.00 mark. The prospects for further short-term increases are supported by the fundamental background. Investors are considering the possibility of a 50bp rate hike in March. The pair's growth was also supported by the fact that there was demand for the dollar and a rally in the yield of treasuries.

Meanwhile, traders are reluctant to make trading decisions ahead of the publication of US inflation data on Thursday, and this affects the dynamics of the USD/JPY pair as well. So far, this is the only factor that can really limit the growth potential of the quote.

Analysts of Societe Generale demonstrate a confident bullish attitude towards USD/JPY, expecting a sharp increase in the quote in the coming weeks. The yield of 10-year Treasury bonds is about to exceed 2%, which means that the pair will quickly approach the 116.00 mark. Then the path to 120.00 will be opened. However, such volatility is likely to be temporary.

If not the dollar, then what? In which direction is it most profitable for the investor to direct their gaze? Experts advise to take a closer look at gold. Although the precious metal does not bring investment income, it is a popular protective asset, especially in conditions of record inflation.

Yes, gold is sensitive to the tightening of monetary policy, this puts pressure on prices. Much will depend on whether the inflation situation worsens and whether interest rates will rise faster. Here we also need to take into account the technical component. Judging by the charts, gold is not going to fall. At the moment, long positions on the XAU/USD pair look preferable. At the same time, the approach of the Fed's March meeting, at which a rate hike is expected, will increase fluctuations in gold and the dollar.

The crucial area is $1,810 per ounce. Its penetration will send the price to $1825, and then to the area of $1830-$1832. A decisive breakdown of this barrier will be seen as a new trigger for bulls. The XAU/USD pair may accelerate growth towards the January peak of $1853.

A convincing breakdown below the $1810 mark will make gold vulnerable to further sales below $1800 dollars, testing support at $ 1790.