The US dollar is stronger this morning despite the generally upbeat tone evident in global equity markets.

Some of the stock market strength is an echo of the retail market’s latest target for collective enthusiasm, with mining shares rising on the back of silver’s gains.

While it’s most apparent why the US dollar is stronger vs the EURO but much less clear against the high-risk beta, perhaps the US strength may stem from the market selling local currencies to buy silver and gold. So, the US dollar then becomes a wash trade, getting accepted relatively well across G10 FX, while weaker against the non-fiat alternatives.

My colleagues on the ground tell me silver eagle coins are flying off the shelf as are wafers and bars suggesting the US dollars printed by the Fed and paid out by the Treasury in the US throughout the past year’s stimulus packages are getting put to fair use.

With the precious metals frenzied retail demand expected to fizzle out, we could see a better spring in the step to risk beta currencies like the Aussie dollar via the US stimulus feedback loop.

EURUSD has pushed lower and may be eyeing a fresh challenge of support at 1.2050. The Euro fell under some pressure after Germany December retail sales came out worse than expected, accentuating the growth differential which now sees FX traders anticipating a stronger US near-term economy versus the Eurozone which lends itself to trading the Euro from your ledger’s short side.

The Malaysian ringgit has been mired in range trade proclivities as the US dollar continued to strengthen even in the face of improving risk sentiment. With oil prices stabilising again above Brent $56 due to OPEC unwavering production compliance commitment, it should offer up some festive food for thought for today’s ringgit traders.

Gold caught in the middle

Gold is caught between the US stimulus’s positive momentum but weighted down by its old foe, a strong US dollar. I suspect range trading biases to play out with most gold views predicated on a weaker US dollar and higher inflation. And with the retail frenzy on silver expected to fizzle, gold will return to being tethered at the hip of the US dollar.

Silver rising

Silver prices are rising but are doing so in the absence of any noticeable change in the underlying fundamentals or macroeconomic development. Instead, silver has been targeted by social media groups in a similar way that GameStop was targeted on the equity markets.

The attack looks to have fallen squarely on the EFP markets. On the IMM COTR data, the opportunity for a “short squeeze” does not appear to exist in the way it did for GameStop as most big trading shops appear positively disposed to silver. Effectively the new “kids on the block” are not “short position stop hunting”. Without a fundamental driver, this implies the recent push higher could fizzle out.

FX and Gold market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi