UK’s fiscal U-turn boosts market sentiment

The European markets are expected to open higher Tuesday as the region reacts to the UK's fiscal U-turns on Monday. After the Nasdaq Composite rose Tuesday morning, US stock futures rose as well, posting their highest daily performance since July. Dow Jones Industrial Average futures gained 373 points or 1.23%. Futures on the S&P 500 and Nasdaq 100 rose 1.46% and 1.7%, respectively. The bright metal also found comfort from a global risk-on mood, lifted by the UK fiscal U-turn.

Gold

Gold started the week on a positive note, recovering from its two-week lows of $1,640 set last week. As part of their efforts to rebuild credibility for the government and maintain financial stability, Liz Truss and the newly appointed Chancellor Jeremy Hunt scrapped almost all of the mini-budget announced on September 23. After a relatively light data week, this move by the UK leaders helped calm nerves. The safe-haven dollar has taken a hit amid market optimism, even though US interest rates have hovered near multi-month highs.

Further, rising expectations of an imminent German recession support gold as a traditional safety net. However, aggressive Fed rate hike expectations capped bullion's recovery gains. In the meantime, bulls stayed away from the $1,668 technical resistance. The metal will likely be supported by fading expectations that China will abandon its zero-Covid policy, as it would mean more pain for the world's largest consumer. Going forward, risk sentiment is likely to play an important role.

US dollar

The US dollar rose slightly on Tuesday, recovering from a 1% drop on Monday as sentiment improved after the UK government reversed a controversial tax policy. The pound strengthened sharply after the move, weighing on the dollar index. The dollar is also underpinned by the weak yields on US Treasury securities across the curve.

In the absence of top-tier economic data from the US, the ZEW sentiment survey for the Eurozone will be released later in the European session, but Fed policymakers will be closely watched for fresh directives about the dollar and yields.

EUR/USD

According to the four-hour chart, EUR/USD appears to have reached the key barrier of the 200-period exponential moving average, which has halted its rally. Once buyers break through this barrier, the next target resides around 0.99089, which is the downtrend line. Alternatively, if the dynamic resistance holds, the 0.98067 support area may be retested.