Mexican Peso Dragged Lower as Oil Falls on Trump’s OPEC Comments

The Mexican peso fell on Thursday on the back of oil losses that were triggered by comments from US President Donald Trump. Oil fell after Trump targeted the Organization of the Petroleum Exporting Countries (OPEC) for not doing enough to keep crude prices low.

This comes ahead of the organization’s meeting in Algeria with other major producers. The production cut agreement has been the most important factor in the stabilization of crude prices since the 2014 drop. Supply disruptions have kept prices in current ranges even as the OPEC and partners such as Russia will be discussing ramping up production.



Mexico joined the efforts led by Saudi Arabia and Russia to stabilize the oil market by curbing production. The tweet by President Trump indirectly affects OPEC’s partners like Mexico and Russia.

NAFTA talks continue today between the US and Canada with both sides remain optimistic but an agreement does not seem to be in the cards in the short term. Canada is facing pressure from the US and Mexico as both have political timelines that have to be met to insure a quick approval. Canadian Foreign Affairs Minister Chrysta Freeland remains committed to get the best deal for Canada and after 13 months of negotiation will not compromise for the sake of a quick deal.

NAFTA hopes are keeping the peso immune from emerging market contagion, but as US-Canada negotiations drag on, that protection will begin to wear off.

Gold steady, shrugs off strong manufacturing, jobless claims data

Gold has taken a pause in the Thursday session, after posting gains on Wednesday. In North American trade, the spot price for one ounce of gold is $1203.83, up 0.05% on the day. On the release front, U.S indicators looked sharp, as Philly Fed Manufacturing Index and unemployment claims both beat expectations.

Which direction is the housing sector headed? This week’s data has pointed in both directions, making it difficult to discern a trend. Earlier on Thursday, Existing Home Sales remained steady at 5.34 million, but this fell short of the estimate of 5.38 million. Key construction reports on Wednesday were a mix. Building Permits disappointed, dropping from 1.31 million to 1.23 million. This was well short of the estimate of 1.31 million and marked the weakest gain since September. There was better news from Housing Starts, which jumped from 1.17 million to 1.28 million, above the estimate of 1.24 million. This was a three-month high.

After a brief respite, the US-China trade spat ratcheted upwards this week. Following weeks of speculation, U.S President Trump announced 10% tariffs on some $200 billion worth of Chinese goods. Only this time, investors didn’t panic. In previous rounds of tariffs, the dollar posted strong gains, but this has not happened this time around. Investors appeared to have been ready for a move by Trump, and may be sighing in relief that the tariff was set at 10% rather than at 25%. One senior economist summed up Trump’s most recent salvo as “bad but manageable”. However, if the Chinese do indeed retaliate and the U.S takes further measures, this would likely shake up the markets and boost the U.S dollar.

Kiwi jumps on strongest growth in two years

U.S safe-haven appeal diminishes

GBP/USD jumps on Brexit reports and retail sales

 

XAU/USD Fundamentals

Thursday (September 20)

  • 8:30 US Philly Fed Manufacturing Index. Estimate 17.5. Actual 22.9
  • 8:30 US Unemployment Claims. Estimate 210K. Actual 201K
  • 10:00 US CB Leading Index. Estimate 0.5%. Actual 0.4%
  • 10:00 US Existing Home Sales. Estimate 5.36M. Actual 5.34M
  • 10:30 US Natural Gas Storage. Estimate 81B. Actual 86B

*All release times are DST

*Key events are in bold

 

XAU/USD for Thursday, September 20, 2018

XAU/USD September 20 at 12:20 DST

Open: 1204.05 High: 1208.46 Low: 1201.34 Close: 1204.63

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1115 1146 1170 1204 1220 1236

XAU/USD ticked higher in the Asian session. In European trade, the pair moved higher but gave up most of these gains. XAU/USD has posted small losses in North American trade.

  • 1170 is providing support
  • 1204 is fluid. Currently, it is a weak resistance line
  • Current range: 1170 to 1204

Further levels in both directions:

  • Below: 1170, 1146 and 1115
  • Above: 1204, 1220, 1236 and 1261

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Oil Falls After Trump Targets OPEC

Oil fell after US President Trump targeted the Organization of the Petroleum Exporting Countries (OPEC) for not doing enough to keep crude prices low. This comes ahead of the organization’s meeting in Algeria with other major producers. The production cut agreement has been the most important factor in the stabilization of crude prices since the 2014 drop. Supply disruptions have kept prices in current ranges even as the OPEC and partners such as Russia will be discussing ramping up production.


West Texas Intermediate graph

The biggest disruption to supply this year has come from the reapplication of US sanctions against Iranian exports. Global producers that are part of the supply curb have telegraphed their intentions but weather and geopolitical factors have been offset with global growth and energy demand forecast downgrades.

Weekly US inventories threw another drawdown data point on Wednesday and have kept the black stuff bid. President Trump has used twitter as a macro policy tool and this time his aim fell on the OPEC. The organization has limited options and will look to Saudi Arabia for leadership as some members have pressured internally to increase production for their own national interests. This time the US is mixing political and economic factors to force an increase in supply, even though the White House is the one who triggered the latest disruption.

OANDA Trading Asia market closing note:Lots of inflexion but a lack of direction

Lots of inflexion but a lack of direction

A day of inflexion in currency markets but we ended up with little direction.

Most of today was spent trying to find a reason, but with the USD looking battle worn and genuinely fatigued, dollar bulls are talking to the sidelines. While the US treasury yields approached the highest level for the year, the USD remains meek. But if the dollar cannot get a bump from higher US yields, where do we go??

Highlights:

NZD

New Zealand’s Q2 GDP surprised the street and printed 1% (0.8% expected). NZDUSD reacted from 0.6600 to 0.6650. Again proving you can never keep a good ” kiwi” down. But, another gut check for dollar bulls, who are falling by the wayside one by one.

Kiwi jumps on strongest growth in two years.

EUR

As London picks up the pace, the Euro finds itself back at that familiar 1.1700 teeter-totter level. Indeed, battle lines are getting drawn ahead of next week Fed meeting.

Asia FX

Everyone is dipping into the magic book of tricks to tame the effect of US tariffs and the strong USD

INR
USDINR NDF fell abruptly this afternoon on wire reports suggesting RBI is studying the efficacy of taking oil companies USD demand away from the market. The state-run oil companies were now sourcing their entire dollar demand in markets, and the RBI is now considering opening a swap window to alleviate the pressure, something they have baulked at in the past.
Indeed, desperate times lead to drastic measures.

China
Mainland authorities are reportedly cutting import tax from most of its trading partners as soon as next month. Of course, the breadth and the actual tax % will be the key. Current estimates are the tax cut will be applied to around 1,500 consumer products.

Oil Markets

WTI
Oil prices continued to firm throughout the day as the drop in US inventories coupled with the rise in exports suggests demand is robust.

Traders are banking on $80 Brent not being a near-term cap and have turned their targets higher. All supported by Saudi comments earlier in the week suggest that they are tolerant  to prices moving above that level

Iran sanction continues to provide the underbelly of support for oil prices.

The ducks are aligning for a push higher suggesting the ” “The bulls are back in charge,”

The morning after

The morning after

US equity market has wholly shrugged off yesterday’s back and forth on US-China trade, as the robust US economy continues to sway investors. However, when we look back at the 2018 stock market run, a lot of ink will be spilt about the benefits of US repatriation flows which are keeping balance sheet flush which could  lead to   higher levels of capital spending, and in a low rates environment, should continue to support a more robust corporate earnings narrative.

While there’s a whole lot that can go upside down in US trade negotiations with  China, Europe and Canada and despite the market taking the bluster in stride, history tells us that tariffs are detrimental for global trade and commerce. As such the current levels of market buoyancy belie the possible groundswell that could overrun markets.

The bottom line why the market didn’t react negatively was the lack of shock and awe given the tariffs were so well telegraphed.

Oil Markets 

Oil prices remain supported despite a larger than expected build in the API US crude inventories report, but stocks at the Cushing, Oklahoma delivery point declined 1.6 million barrels according to the API.

Traders are ignoring today’s API data given while focusing on news from the middle east

Prices firmed when Russia pointed the finger at Israel when one of their reconnaissance planes was shot down, although it was later determined to be a  Syrian defence missle.  None the less any type of escalation in the middle east provided a fillip for oil prices.

But it was comments from Saudi oil officials that continues to resonate. It was only two weeks ago traders were assuming that OPEC was prepared to keep Brent trading between 70 and 80 per barrel. However, overnight chatter suggests that the Saudis are more than happy with a Brent price above $80 or that OPEC, more generally, is not considering raising output.

The September 23 OPEC+ meeting in Algiers turning into a significant affair with 20+ nation set to attend. It appears Saudis are putting their cards on the table ahead of the meeting and is currently being view through a bullish lens.

Gold Markets 

Continues to be driven by the USD, given the lack of clear direction overnight, the market continues to teeter-totter around the critical $1200 levels.

Currency Markets

JPY was the worst performing currency over the past 24 hours due to higher US yields and a more buoyant risk market, and of course, the Nikkei benefits through the weaker yen better for exports feedback loop.

Some focus on the BoJ meeting today. Expected to tow the line but forward guidance is the key after BoJ was discussing throughout the summer about tapering.

CAD was among the best-performing currencies globally on broader sentiment. Investors are waiting to restart conversations trader took the following in a very positive light House Majority Whip Steve Scalise stated. “While we would all like to see Canada remain part of this three-country coalition, there is not an unlimited amount of time for it to be part of this new agreement.”

AUD the return of global risk appetite has the Aussie bulls coming out of the woodwork. But with the A$ the main G-10 proxy to express China risk, I think the top side will be limited given the sheer volumes of headline risk.

MYR: Higher oil prices and a favourable risk environment should see the Ringgit trade more favourably, but the surge in US yields will temper trader’s expectations

Asia closing market notes : riding the risk rollercoaster

The markets are riding the risk roller coaster as headline overload has been dominating the Asian session.

First, the USTR tariff announcement had a bit more sting than expected due to the graduated settings 10 per cent now then up to 25 per cent in January on 200 bln. Which suggests the US is looking to talk but also not the President is not willing to cede the upper hand.

Then it was a matter of confusion reigns as CHINA SAYS COOPERATION IS ONLY RIGHT CHOICE FOR CHINA, followed by CHINA LIKELY WILL NOT SEND TRADE DELEGATION TO WASHINGTON, which tugged risk every which way but loose and left trader chasing their tail most of the session.

Frankly, I’m still surprised by the level of complacency, but then again, this escalation was so telegraphed suggesting today’s playbook could not have been scripted any better. But I’m keenly focused in USDCNH and China equities as the market’s composure surely belies the groundswell that’s yet to come.

Oil markets are in a tug of war as Iran sanctions will continue to provide near-term support, while discussions around global demand in the wake of this morning tariffs and speculation of further OPEC supply increases should temper upside ambitions. But in the absence of any OPEC supply shift, Iran and Venezuela shortfall should ultimately push prices higher, at least for the near term.

Gold continues to trade in tandem with the USD but, but with traders still debating the next USD direction we could remain in $1190- $1210 range.

ON the currency front, The Euro is showing a spring step but failed again at 1.1720. The August high 1.1730 remains critical while significant support should come in around 1.1620. Frankly, the EURUSD is where the near-term US dollar (X JPY) battle lines are forming.

Draghi has shifted less dovish, and fear index around Italian risk is easing., but we still have that unmistakably hawkish Fed here former dove like Lael Brainard continues to sound unmistakably hawkish every time she takes the podium.

OIL wobbles on tariff announcement

Bloomberg) — Oil dipped below $69 a barrel as heightened trade tensions between the world’s biggest economies stoked fears over economic growth and energy demand.

Futures in New York dropped as much as 0.6 percent. U.S. President Donald Trump announced that he will impose a 10 percent tariff on about $200 billion in imports from China next week, and more than double the rate in 2019. That overshadowed lingering global supply risks as Iranian oil exports plunged to a 2 1/2-year low while analysts forecast U.S. crude inventories to have declined for a fifth week.

Oil has climbed more than 5 percent from the lows of August as looming U.S. sanctions on Iran start removing barrels, with buyers shunning imports from the Islamic republic before a November deadline. Still, the U.S.-China trade dispute is clouding the outlook for demand, and investors are closely watching whether OPEC and its allies will increase output when they meet to discuss strategy in Algeria on Sept. 23.

“Discussions around global demand in the wake of this morning’s tariffs and speculation of further OPEC supply increases should temper upside ambitions,” said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda Corp. At the meeting in Algiers, members will be “most likely to discuss the supply disruption from Iranian sanctions, which is leading to speculation that further production increases will be presented at the meeting.”

 

Bloomberg

Copper melts

MANILA, Sept 18 (Reuters) – London copper drifted lower for a third session running on Tuesday as China vowed to respond to the latest U.S. tariffs on about $200 billion of Chinese goods, exacerbating the trade war between the world’s two biggest economies.

In imposing the new tariffs, U.S. President Donald Trump warned that if China takes retaliatory action against U.S. farmers or industries, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”

China’s commerce ministry said the country has no choice but to retaliate against the fresh U.S. tariffs and hopes the United States would correct its behaviour.

“We know China can’t go tit for tat as they don’t have enough U.S. goods to tax,” said Stephen Innes, head of Asia Pacific trading at OANDA brokerage.

“So, if there is a more heavy-handed approach such as flat-out import restriction or overtly weakening the yuan, it could certainly bring the big market bears out of hibernation,” Innes said in a note to clients.

Commodities Weekly: Copper nears 15-month low as fresh tariffs announced

CNBC via Reuters

Commodities Weekly: Copper nears 15-month low as fresh tariffs announced

The commodity space has generally struggled today amid escalations in the US-China trade war. US President Trump announced a 10% levy on Chinese imports from September 24, rising to 25% next year.  China has said it will decide today how to retaliate.

 

Base metals

COPPER fell as much as 2.3% this morning after US President Trump announced the next phase of tariffs on Chinese imports. The industrial metal edged down to 2.5605, approaching the August 15 low of 2.5393, which was the lowest since June 2017. Concerns about an escalation and prolongation of the US-China trade war and its possible impact on global growth are among the reasons for the pressure.

 

Precious metals

GOLD has potential to have its first up-week in four, despite the uptick in the US dollar after the fresh tariffs were announced. The metal is currently at 1,199.33, up 0.5% so far this week, and may be attempting a test of the 55-day moving average, which is currently at 1,213.28. That moving average has capped gold prices since April 25.

 

Gold Daily Chart

Source: Oanda fxTrade

 

Speculative accounts reduced their net short exposure by 5,907 contracts in the week to September 11, according to the latest CFTC data. Bloomberg reports that gold holdings by Exchange Traded Funds shrank for the 17th straight week while those of the largest ETF fund, SPDR Gold Holdings, have fallen to their lowest since 2016.

 

SILVER is struggling to match the rebound gold has seen and is stuck close to the 30-month lows struck earlier this month. The gold/silver (Mint) ratio is holding near 10-year highs at 84.847, confirming silver’s struggles.

Speculative accounts reduced their net short positions in silver for the first week in six, according to CFTC data as at September 11. The nearest support point is probably the September 11 low of 13.9445 while resistance is possible at the August 28 high of 14.9993 and the 55-day moving average at 15.0598.

 

PLATINUM remains capped by the 55-day moving average, which has held on a closing basis since February 28. The metal is currently at 799.04 with the 55-day moving average at 811.63. Speculative net short positioning was reduced to 7,568 contracts, the smallest in nine weeks, according to CFTC data as at September 11.

 

PALLADIUM continues to benefit from the gradual shift from diesel-powered cars to gasoline-powered in the EU. Petrol-driven autos require catalytic converters, which use small amounts of palladium, and Bloomberg estimates that as much as 84% of 2018 consumption will be used in this area. This contrasts with the decline of platinum which is used more in diesel engines. The better outlook for palladium is reflected in speculative positioning, where accounts are net long and increased those longs to the highest in two months, according to latest data to September 11. The precious metal is now at 986.750, testing the 200-day moving average at 988.66.

 

 

Energy

CRUDE OIL prices have been pressured by the clouded demand outlook when faced with the escalating tariff war,  while the supply outlook also remains uncertain, with Iran sanctions due to kick in from November 4. WTI is slowly moving into the apex of a triangle pattern, which has been forming since the near-term peak on July 3. The breakout points today would be either $71.00 to the upside or $68.33 to the downside. WTI is currently trading at $68.724.

 

WTI Daily Chart

Source: Oanda fxTrade

 

Brent crude peaked at $79.944 on September 12 and there is growing market chatter that OPEC members may be attempting to keep it neat $80 per barrel through to the US mid-term elections in November. The spread between Brent and WTI has narrowed to about 8.8 points from above 10 points last week.

 

NATURAL GAS is set for its second day of gains, though faces some tough technical resistance obstacles to overcome. Rising 0.3% today to 2.828, gas has three moving averages just above. The 200-day is at 2.8376, 55-day at 2.8455 and 100-day at 2.8590. The last time natural gas traded above all three moving averages was on September 12.

A German government spokesperson said yesterday that Germany’s gas market is open to all market participants. Currently Russia supplies 60% of German gas imports and there is speculation the US companies expect to start delivering liquefied natural gas to Germany within four years, even though it would cost more than Russian gas.

 

 

Agriculturals

The weather continues to play havoc with WHEAT supply chains as Australia contends with both droughts and cold snaps in various wheat-growing regions, with frost reported in the southern areas of Western Australia. Compensating somewhat for potential shortfalls in supply, Russia’s wheat exports are 48% higher this season than the previous one, according to data as at September 13 supplied by the Russian Agriculture Ministry. In contrast, the US revealed that its exports were down 10% y/y as at September 6.

Wheat continues to shy away from support at the 200-day moving average, which is at 4.7220 today, and has done since March 29. The commodity touched a two-month low of 4.739 on September 13 and has enjoyed a 3% bounce since then.

 

CORN took a tumble last week after the US Department of Agriculture boosted its forecasts for domestic production and stockpiles, even though farmers were planting less acreage as the yield per acre hit an all-time high.  Corn had its biggest one-day fall since June 19 on September 12, the day the report was released. The commodity is now at 3.346 after touching 3.339 earlier today, the lowest since July 17.

 

SUGAR has given back more than 50% of its August 22 to September 13 rally in the first two days of this week, and has broken back below the 55-day moving average at 0.1072. Sugar is currently trading at 0.10663.

The decline comes as news emerges that typhoon Mangkhut passed by most of China’s sugarcane growing area in the Guangdong province, and did not cause as much damage to the crop as initially feared. Guangdong province produces about one million tonnes of sugar each year, about 10% of the country’s output.

 

Sugar Daily Chart

Source: Oanda fxTrade

 

SOYBEAN prices continue to be pressured by the US-China trade war with prices touching a two-month low this morning. Soybeans fell to 8.112, the lowest since July 16, and is facing its fourth down day in a row. The commodity is now at 8.155.

The drop comes even as news emerged of a potential supply disruption from China, where the top-growing region was hit by a frosty spell from September 9 to 10. This could cut output from the region by 4.5%, or 275,000 tons.

Seeing the forest for the trees

Seeing the forest for the trees

With trade war dominating the landscape, even more so after this morning’s US tariff headline, it’s easy to focus on markets from a one-dimensional perspective. But cross-asset trading is multidimensional and observing the more granular details can offer much-needed clarity in these difficult times.

US Markets

Certainly, Trade war worries are talking their tool on global equities with even the Teflon US markets showing some fraying at the edges. But today’s compass suggests trade-related global equity weakness is due to tech, as opposed to emerging markets or China. Apple, for example, does a booming bilateral business with China and with investors veering to the notion that recent weakness in U.S. tech is a result of administration earlier tariffs then a 200 billion wallop is being perceived particularly damning even for the remarkably resilient US heavyweights in the tech sector.

Ultimately equity markets remain in wait an see as big unknown remains Chinas response which will set the tone for risk sentiment. After all, much of this tariff headline was well telegraphed.

We know China can’t go tit for tat as they don’t have enough US goods to tax. So, if there is a more heavy-handed approach such as flat-out import restriction or overtly weakening the Yuan, it could certainly bring the big market bears out of hibernation.

With the US  implementing a graduated tariff hike, starting with 10 % on 200 billion and moving to 25 % at the start of 2019. The ball is clearly in China’s court. While the   US tariffs salvo is hardly middling, it’s not a bad as it could have been, so unless China hits with draconian measures, markets should remain supported after this morning knee-jerk reactions. Ultimately the graduated tariff hike allows more room to negotiate before the thumping 25 % levy gets triggered, so perhaps China may temper their response accordingly.

Smartwatches and Bluetooth devices were removed from the tariff list, suggesting the President is “watching” the market while taking the US heavyweight giants and US consumer under consideration.

Oil Prices
Iran sanctions will continue to provide near-term support, while discussions around global demand in the wake of this morning tariffs and speculation of further OPEC supply increases should temper upside ambitions.

Oil futures posted a minor loss on Monday. After finding some support from potential global supply losses among various OPEC countries (Iran and Venezuela). But prices eventually gave way and are tracking the CRB index lower pressured on the prospects that US tariff will negatively impact global demand.

Also, Washington continues to suggest that Saudi Arabia, Russia and the United States can raise output fast enough to offset falling supplies from Iran.

The September 23 OPEC+ meeting in Algiers is taking on a bit of life of a life of its own as what was initially thought to be a be a fundamental review of production data by OPEC’s steering committee has now turned into 20+ nation affair. Suggesting everyone wants a seat at the table most likely to discuss the supply disruption from Iranian sanctions, which is leading to speculation that further production increases will be presented at the meeting.

Gold Markets

Another case of rinse and repeat
A modestly weaker dollar and aggressive short-covering pushed gold above the $1200 teeter-totter level, this despite a more hawkish lean from Fed-speak last week. Besides, haven buyers continued showing some bravado felling more confident buying gold when the dollar is fading which is provided with a subtle tailwind for prices overnight as investors brace for possible more massive tariffs than what’s currently priced into the markets. But price action remains entirely dollar driven. So, what the dollar giveth the dollar taketh as USD haven demand is back in vogue post-trade announcement.

Further risk response will be dependant on China response.

Currency Markets

I am challenged not dollar bullish from a pragmatic US interest rate storyline. But of course, price action needs to be respected especially with the EUR veering towards 1.1700 again. The strong US economy suggests USD yields have further room to run. And when former doves like Fed Governor Lael Brainard, who I dare say, is starting to roost with the Hawks, it’s giving clear signals that this sitting Fed is more hawkish than the markets 2019 rates lean.

The Chinese Yaun 

The primary trade war currency hedge is back in play with USDCNH moving above 6.89 as the market awaits Chinas response. But seller should emerge given how quick the market response has been to take USDCNH higher and the uncertainty over Pboc’s next move.

Euro

With Trade ware dominating headlines early Monday morning it’s easy to overlook some basics shift in EU zone fear index with European Bank Index and CDS curve suggesting Italy’s risk premium is getting priced out the equation. Even Turkey, despite another currency wobble yesterday, is stabilising somewhat on the recent astonishing CBT rate hike. The diminishing fear factors could push Bund higher and provide support for the Euro.

Australian Dollar

The Australian Dollar has weakened on the 20 pips on the tariff news in consort with USDCNH moving higher as the Aussie will remain a G-10 proxy for China risk, so it’s susceptible to more headline wobbles in coming days especially China response which could be extremely crucial for risk sentiment. But so far, the Aussie reaction is pretty much following the tariff playbook.

We do have the RBA, but I suspect its unlikely to alter today’s negative Aussie lean.

Japanese Yen
Risk has wobbled on the Trade headline triggering some modest haven moves to the Yen. But volumes are light, as frankly market at his stage are not panicking as the bulk of this tariff headline was already factored.

Canadian Dollar

The Lonnie is sagging, but this is possibly more about positioning as the markets found themselves short around the 1.3000, and with the CAD $ Perma -bears failing to yield that level,  the tariff headlines have triggered more short covering. But moves toward towards 1.3100 will likely be faded as NAFTA discussion are still going on.

Malaysian Ringgit

The recent support for EM central banks (Russian, Turkey and India) is buffeting the EM complex.
The 200 billion in tariffs, while negative for regional sentiment, is not as impactful for the Ringgit as the currency remains relatively insulated due to domestic oil exports and improved term s of trade. But higher US interest rates do pose some significant concerns, especially if a more hawkish fed vs a more dovish BNM does come to fruition.