EUR/USD – Euro Unchanged as German GDP, CPI Matches Forecasts

The euro has shown some movement in both directions but is unchanged in the Wednesday session.  Currently, the pair is trading at 1.2356, up 0.04% on the day. It’s a busy day for fundamentals, with key releases out of the eurozone and the US. In Germany, Preliminary GDP slowed to 0.6% in the fourth quarter, matching the estimate. Final CPI declined 0.7%, also matching the forecast. Eurozone Flash GDP for Q4 remained steady at 0.6% for a third straight quarter, matching the estimate. In the US, the markets are expecting mixed inflation numbers. Core CPI is expected to expected to edge lower to 0.2%, while CPI is forecast to improve to 0.1%. The US will also release retail sales reports. Retail Sales is forecast to slow to 0.2%, while Core CPI is forecast to accelerate to 0.5%. Traders should be prepared for movement from EUR/USD during the North American session.

The stock market sell-off has triggered some volatility in the currency markets, and this is causing concern at the ECB. Last week, ECB President Mario Draghi said that he is more confident that eurozone inflation is moving closer to the Bank’s target of just below 2 percent, due to improving economic growth. However, Draghi listed currency market volatility as an obstacle to the inflation target, and added that the ECB would carefully monitor the euro’s exchange rates. Draghi’s concerns about the exchange rate are likely even stronger, after the euro fell 1.6 percent last week. The ECB tapered its massive stimulus program from EUR 60 billion to 30 billion/mth in January, and the markets are on the lookout for hints as to whether the ECB will normalize policy and wind up stimulus in September.

Global stock markets have steadied after last week’s turbulence, but investors remain wary. Wednesday’s US inflation numbers will be closely watched, as inflation fears was a key catalyst of the massive sell-off. The new head of the Federal Reserve, Jerome Powell, sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

The day of reckoning

 

EUR/USD Fundamentals

Wednesday (February 14)

  • 2:00 German Preliminary GDP. Estimate 0.6%. Actual 0.6%
  • 2:00 German Final CPI. Estimate -0.7%. Actual -0.7%
  • 3:00 German Buba President Weidmann Speaks
  • 4:00 Italian Preliminary GDP. Estimate 0.4%. Actual 0.3%
  • 5:00 Eurozone Flash GDP. Estimate 0.6%. Actual 0.6%
  • 5:00 US Industrial Production. Estimate 0.1%. Actual 0.4%
  • Tentative – German 30-year Bond Auction
  • 8:30 US CPI. Estimate 0.3%
  • 8:30 US Core CPI. Estimate 0.2%
  • 8:30 US Core Retail Sales. Estimate 0.2%
  • 8:30 US Retail Sales. Estimate 0.5%
  • 10:00 US Business Inventories. Estimate 0.3%
  • 10:30 US Crude Oil Inventories. Estimate 2.8M

Thursday (February 15)

  • 5:00 Eurozone Trade Balance. Estimate 22.4B
  • 8:30 US PPI. Estimate 0.4%
  • 8:30 US Empire State Manufacturing Index. Estimate 17.7
  • 8:30 US Philly Fed Manufacturing Index. Estimate 21.5
  • 8:30 US Unemployment Claims. Estimate 229K

*All release times are GMT

*Key events are in bold

 

EUR/USD for Wednesday, February 14, 2018

EUR/USD for February 14 at 6:00 EDT

Open: 1.2351 High: 1.2393 Low: 1.2346 Close: 1.2356

 

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.2092 1.2200 1.2286 1.2357 1.2481 1.2569

EUR/USD inched higher in the Asian session and has retracted in European trade

  • 1.2286 is providing support
  • 1.2357 was tested earlier in resistance and is under strong pressure

Further levels in both directions:

  • Below: 1.2286, 1.2200, 1.2092 and 1.1961
  • Above: 1.2357, 1.2481 and 1.2569
  • Current range: 1.2286 to 1.2357

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged in the Wednesday session. Currently, short positions have a majority (54%), indicative of EUR/USD breaking out and moving lower.

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.

A day of calm

A day of calm

Equity markets have begun the week on a somewhat positive not picking up from Friday rebound as bargain hunters have returned on the first sign of stability. I guess if you owned a stock for fundamental reasons seven days ago and its 5 % lower this week, why not add to the portfolio? So the story goes.

While the Vix has pulled back to the 25 zone, it’s very trying to view this weeks stock market bounce anything other than technical correction after critical Global benchmarks had one of the there worst performances in years. However, the market is trying to find a positive equilibrium, and if we can get through this week’s critical US CPI relatively unscathed, then it would most certainly look as if last week was little more than a corrective episode rather then the commencement of a bear market.

None the less, government bond yields have found some stability after yields moved higher, albeit in very thinly traded Bond markets.
But certainly adding to the semblance of calm which has started the week. But concerns abound that the Bond Markets have only begun to factor in both the global reflation trade and burdening supply which could drive US bond yields considerably higher.

Oil  Markets

Ignoring US supply-side concerns, OIl markets attempted to make a half-hearted recovery overnight on little more than an equity market correlated bounce and indeed the weaker USD added to the momentum.

Despite the Oil market exhibiting all the hallmarks of technical trading, toppling from massively overbought conditions to retracing on an equity correlated bounce. But technical momentum or not, with the EIA data around the corner, it’s hard not to overlook their expectations that U.S. crude output may rise to 11 million bpd by the end of the year.

However, global demand remains firm, and despite the shale oil boom the supply tightening narrative remains prevalent with OIL towing the line.

Battle lines are forming in an around the WTI 60.00 bpd level which should make for an exciting market this week.

Gold Markets

Gold prices were supported by a weaker dollar and physical demand ahead of Chinese lunar new year. The equity market carnage has abated, and the waves of cross assets selling to replenish equity margins have temporarily decreased providing a calmer market to re-establish Gold longs. But prices should remain within a range ahead of this week US inflation data as the US CPI will be a monster print for the markets inflation views and could provide a catalyst for Gold to bounce higher.
Currency Markets

The US dollar traded lower as currency traders are analysing the rebounding global equity markets. Lots of noise but little momentum as traders are keying on this week’s US CPI with volumes and liquidity density much lower to start the week.

Japanese Yen

The markets continue to digest the potential FX trading leverage cap for individuals in Japan. Mrs Watanabe was a considerable player in the market( especially for Retail brokers), so we’re keeping a close eye on the developments

As for the Yen, we seem to be at a crossroads in all Asian markets with currency markets barely budging looking for some inflation clarity in Wednesday CPI. The fear is that a higher print will send bond yields sky high and equity markets will tumble once again.

Australian Dollar

A rebound in risk sentiment has seen USD haven hedged unwind and buoyed commodity markets.As such, the Aussie dollar has found some solid footing this morning
Malaysian Ringgit

We’re at a bit of a crossroads this week as the markets are grappling with inflation versus the global growth narrative.

An uptick in inflation will lead to higher yields and will present the most significant headwind for the Ringgit. While the market has priced in 3 US rate hikes for 2018, a sudden uptick in US inflation could quicken the pace of the FED interest rate normalisation and could weigh negatively on regional sentiment.

We expect the market to trade in a tight range ahead of this domestic GDP and US CPI. Both monster data points for the Ringgits near-term fate

Hawks coming home to roost

Hawks coming home to roost

Equity markets were trounced on the back of Global yields parading to multi-year highs Thursday. Indeed, it was less dovish Fed speak that continued to be the driver, and the BoE provided a hawkish bounty for good measure.

The ruckus in the bond pits these days appears hell-bent on marching towards 3 % 10Year UST yields much quicker than anyone had suspected which suggest equity markets will come under the hammer for some time to come. Yields are becoming the real storyline as a combination of tighter monetary policy and the US burdening deficit leading to more supply, suggests we have crossed a 2.75 % 10Y UST bridge of no return, and the ride could get bumpier for equity investors.

The issue is not so much the 3% level but rather the pace that Bond yields have been rising in the US that is sending the markets into disarray. The rapidity of the moves has caught the markets by surprise, and we are going through the predictable panicked repricing of most asset classes.

Oil Markets

Crude prices continued to tank overnight as the commodity complex has suffered dearly due to the uptick in market volatility. But the toxic combination of rising US output and a stronger US dollar has nullified OPEC production cut momentum.

With the markets factoring in US crude production to continue hitting new record highs through 2018, the supply dynamics suggest a move below $ 60 WTI is in the offing.
Gold Markets
Gold toppled to a five-week low after the Bank of England whispered a sooner and more substantial rate rises after revising their growth and inflation forecast. The quicker than expected shift on Central Bank Monetary Policy outlooks coupled with the rapid increase in US bond yields continues to dampen investor sentiment. However, Gold prices quickly recovered as the equity market drawdowns continue to attract risk off hedges while the Syria Standoff with Turkey is offering support on the geopolitical front.
Currency Markets

The Australian Dollar

The rise in US bond yields has toppled the Aussie dollar and dented risk sentiment as global equity market continues to tumble.

Market volatility is weighing negatively on commodities, add in a dose of dovish RBA rhetoric, and therein lies the heart of the Aussie dollar woes.

Also, the Aussie was trampled on when USDCNH shot up from 6.3050 to 6.3750 as it seems that China is opening up more channels for outflows to slow RMB appreciation. (See below)

The Aussie dollar tends not to flourish in these types of markets.
The $ Bull in the China Shop: Chinese Yuan

The dollar bull was let loose in the China shop yesterday as a confluence of events had trader paring back short US dollar risk from the morning fix.

The fix came in a bit higher than expected which usually causes a bit of a move higher but, it was the article in China Economic Daily that was creating the most noise as the report urges corporates to enhance FX risk management. (Nudge Nudge)
China has also resumed its Qualified Domestic Limited Partnership plan after a two-year halt, granting licenses to about a dozen global money managers that can raise funds in China for overseas investments. While it does not have a massive Foreign Exchange flow impact,  and  more symbolic than anything else,  it is none the less suggestive that the Pboc is less sensitive to capital outflow

Given that positions were skewed short US dollar, the confluence of events had traders covering positions aggressively knowing that liquidity will be sure to dry up the closer we get to Lunar New Year.

The China trade numbers were perceived disappointing ( I have opposite view) which contributed to some currency negativity.

But from any logical perspective, it was hard to ignore the Mainland equity fire sales this week which certainly had a negative bias on currency sentiment

The Malaysian Ringgit

Negative regional currency signals abound.

The rapid repricing higher in US bond yields has taken investors by surprise. Moreover, with US yields looking to push higher, we could be in for a bit more pain before the markets find some solid footing.

Higher US yields are supporting the USD and weighing on global equity sentiment which is hurting overall regional risk appetite.

US record crude production continues to weigh negatively on oil prices.

The proximity of Chinese Lunar New year has traders paring back risk.

The market, at least for now, is hedging against the Fed potentially leaning more hawkish, which is explaining the uptick in USD, US Yields and lower equity markets.

Gold Dips to 2-Month Low But Recovers

Gold prices dropped considerably on Thursday before recovering. In North American trade, the spot price for an ounce of gold is $1319.57, up 0.10% on the day. On the release front, there was excellent news on the employment front, as unemployment claims dropped to 221 thousand, well below the estimate of 232 thousand.

The US labor market remains strong, so much so that January’s nonfarm payrolls and wage growth reports triggered the strong slide on global stock markets this week. Unemployment claims sparkled on Thursday, dropping to 221 thousand. The 4-week moving average dropped to 224,500, its lowest level since 1973. Although unemployment remains at record-low levels, the lack of slack in the labor market has not led to strong wage growth, and inflation remains below the Fed target of 2 percent. One of the priorities for the new chair of the Federal Reserve, Jerome Powell, will be to examine what steps can be taken to raise inflation, which has not kept up with robust economic growth.

Powell was probably hoping for a quiet start at his new job as chair of the Federal Reserve, but the stock markets had other plans. Powell, who took over on Saturday, was greeted by the largest one-day drop ever on the Dow Jones on Monday, as US stock markets nosedived. Some analysts went as far as attributing some of the losses on the changing of the guard at the Fed, but this appears unlikely, given that Powell is expected to follow Janet Yellen’s policies. This sentiment was echoed by on Tuesday by St. Louis Federal Reserve President James Bullard, who said that he does not think that policy will change appreciably under Powell. A more plausible explanation for the massive sell-off earlier this week was investor concern of faster rate hikes by the Federal Reserve if inflation moves higher. Higher interest rates would make the dollar more attractive and weigh on gold prices. The Fed expects to raise rates three times in 2018, but could make four moves if the economy remains strong and inflation improves.

XAU/USD Fundamentals

Thursday (February 8)

  • 8:30 US Unemployment Claims. Estimate 232K. Actual 221K
  • 10:00 US Mortgage Delinquencies. Actual 5.17%
  • 10:30 US Natural Gas Storage. Estimate -116B. Actual -119B
  • 13:01 US 30-year Bond Auction

*All release times are GMT

*Key events are in bold

XAU/USD for Thursday, February 8, 2018

XAU/USD February 8 at 12:55 EST

Open: 1318.47 High: 1332.33 Low: 1307.08 Close: 1319.57

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1260 1285 1307 1337 1375 1416
  • XAU/USD posted gains in the Asian session but gave up these gains in European trade. The pair continues to lose ground in North American trade
  • 1307 is providing support
  • 1337 is the next resistance line
  • Current range: 1307 to 1337

Further levels in both directions:

  • Below: 1307, 1285 and 1260
  • Above: 1337, 1375, 1416 and 1433

OANDA’s Open Positions Ratio

XAU/USD ratio is showing gains in long positions session. Currently, short positions have a majority (57%), indicative of trader bias towards XAU/USD continuing to move lower.

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.

GBP/USD – Pound Gains Ground as BoE Hints at Rate Increase

The British pound has posted gains in the Thursday session, erasing the losses seen on Wednesday. In North American trade, GBP/USD is trading at 1.3919, up 0.29% on the day. On the release front, the Bank of England maintained interest rates at 0.50%, but hinted at earlier and larger rate hikes. In the US, unemployment claims dropped to a sparkling 221 thousand, well below the estimate of 232 thousand.

The BoE was in the spotlight on Thursday. The Bank made no changes to interest rates or quantitative easing, and both moves were unanimous (9-0). There was some surprise however, at the hawkish tone of policymakers, who said that interest rates could rise “earlier” and by a “somewhat greater extent” than they predicted at their previous meeting in November. Bottom line? We could see an interest rate in the first half of 2018, with analysts circling May as the most likely date. At the same time, the effect that Brexit is having on the economy is difficult to predict, and if the economic conditions worsen, the BoE could delay a rate hike.

Pound jumps on ‘Hawkish’ BoE

It’s been a rough week for the pound, which is down 1.5 percent. The US dollar has posted gains against the pound and the other majors, after a massive sell-off on global stock markets on Monday. The sell-off was precipitated by strong US nonfarm payrolls and wage growth reports on Friday. This triggered concerns that higher inflation was on the way, which in turn would result in more rate hikes this year. Higher interest rates make the dollar more attractive for investors, at the expense of other currencies. If the turbulence in the stock markets continue, the pound could resume its downward movement.

 

GBP/USD Fundamentals

Thursday (February 8)

  • 7:00 BoE Inflation Report
  • 7:00 MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9
  • 7:00 BoE Monetary Policy Summary
  • 7:00 BoE Official Bank Rate. Estimate 0.50%. Actual 0.50%
  • 7:00 BoE Inflation Letter
  • 7:00 MPC Asset Purchase Facility Votes. Estimate 0-0-9. Actual 0-0-9
  • 7:00 British Asset Purchase Facility. Estimate 435B. Actual 435B
  • 8:30 US Unemployment Claims. Estimate 232K. Actual 221K
  • 10:00 US Mortgage Delinquencies. Actual 5.17%
  • 10:30 US Natural Gas Storage. Estimate -116B. Actual -119B
  • 13:01 US 30-year Bond Auction

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, February 8, 2018

GBP/USD February 8 at 12:20 EDT

Open: 1.3880 High: 1.4067 Low: 1.3846 Close: 1.3918

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3744 1.3809 1.3901 1.4010 1.4128 1.4271

GBP/USD ticked upwards in the Asian session. In European trade, the pair posted slight losses but reversed directions and made strong gains in European trade. In the North American session, the pair posted slight gains but has changed directions and is moving lower.

  • 1.3901 is providing support
  • 1.4010 was tested in resistance earlier on Thursday

Current range: 1.3901 to 1.4010

Further levels in both directions:

  • Below: 1.3901, 1.3809, 1.3744, 1.3613
  • Above: 1.4010, 1.4128 and 1.4271

OANDA’s Open Positions Ratio

GBP/USD ratio is showing movement towards short positions. Currently, short positions have a majority (55%), indicative of trader bias towards GBP/USD reversing directions and moving lower.

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.

USD/CAD – Canadian Dollar Steady as Housing Reports a Mixed Bag

The Canadian dollar has ticked higher in the Thursday session. Currently, the pair is trading at 1.2562, down 0.07% on the day. On the release front, Canadian housing numbers were mixed. The New Housing Price Index edged lower to 0.0%, shy of the estimate of 0.1%. This was the first time the index failed to post a gain since January 2015. There was better news from Housing Starts, which was almost unchanged at 216 thousand, beating the forecast of 211 thousand. In the US, unemployment claims dropped down to 221 thousand, well below the estimate of 232 thousand. The 4-week average claims dropped to 224,500, its lowest level since 1973. On Friday, Canada releases key employment data – Employment Change and the unemployment rate.

The US dollar has posted broad gains this week, boosted by strong volatility in the stock markets. On Monday, the Dow Jones posted its biggest one-day loss, and US markets have pointed downwards for much of the week. The catalyst for the stock market slide is concern that inflation could rise in the US, which in turn would trigger additional rate hikes from the Fed. This would make the US dollar more attractive against other currencies. With investor risk appetite sharply lower, the Canadian dollar is under strong pressure. Earlier in the day, USD/CAD touched a high of 1.2598, its highest level since late December.

Canadian indicators disappointed on Tuesday. Canada’s trade deficit widened from C$2.5 billion to C$3.2 billion, well above the estimate of C$2.3 billion. The export sector has been steady, but uncertainty over NAFTA is a dark cloud over the economy, and exports could suffer if the trilateral free trade pact is not renewed. The US has threatened to leave the pact if the Canada and Mexico do not agree to major concessions, such as increasing the percentage of US content in auto parts produced under NAFTA. Elsewhere, Canadian Ivey PMI continues to point to expansion, but slowed to 55.2, down from 60.4 in the previous release. This was well off the forecast of 60.7 points.

USD/CAD Fundamentals

Thursday (February 8)

  • 8:15 Canadian Housing Starts. Estimate 211K. Actual 216K
  • 8:30 Canadian NHPI. Estimate 0.1%. Actual 0.0%
  • 8:30 US Unemployment Claims. Estimate 236K
  • Tentative – US Mortgage Delinquencies
  • 10:30 US Natural Gas Storage. Estimate -116B
  • 12:45 BoC Senior Deputy Governor Carolyn Wilkins Speaks
  • 13:01 US 30-year Bond Auction

Friday (February 9)

  • 8:30 Canadian Employment Change. Estimate 10.3
  • 8:30 Canadian Unemployment Rate. Estimate 5.8%

*All release times are GMT

*Key events are in bold

USD/CAD for Thursday, February 8, 2018

USD/CAD, February 8 at 8:00 EDT

Open: 1.2668 High: 1.2598 Low: 1.2550 Close: 1.2590

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2190 1.2351 1.2494 1.2630 1.2757 1.2855

USD/CAD inched lower in the Asian session and has posted small gains in European trade

  • 1.2494 is providing support
  • 1.2630 is the next resistance line
  • Current range: 1.2494 to 1.2630

Further levels in both directions:

  • Below: 1.2494, 1.2351, 1.2190 and 1.2060
  • Above: 1.2630, 1.2757 and 1.2855

OANDA’s Open Positions Ratio

USD/CAD ratio is showing  movement towards short positions. Currently, long positions have a majority (53%), indicative of trader bias towards USD/CAD continuing to move upwards.

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.

EUR/USD – Euro Slips to 2-Week Low as Stock Market Turmoil Continues

The euro has edged downwards on Wednesday. Currently, the pair is trading at 1.2228, down 0.29% on the day. On the release front, the Germany’s trade surplus narrowed to EUR 21.4 billion, just shy of the estimate of EUR 21.5 billion. In the US, the key event is unemployment claims, which is expected to edge up 232 thousand. On Friday, France releases Industrial Production.

The euro has been under pressure for most of the week, and is down 1.8 percent against the dollar. The greenback has benefited from sharp volatility in global stock markets this week. The week started with the Dow Jones posting its biggest one-day loss, and the markets have been choppy throughout the week. US markets were in the red on Wednesday, and this has weighed on European stock markets and the euro in the Thursday session. Investors are concerned that inflation could rise in the US, which in turn would trigger additional rate hikes from the Fed. This would make the US dollar more attractive against the euro and other currencies.

After months of political uncertainty, Germany appears on the verge of forming a new government. On Wednesday, the socialist SDP and Angela Merkel’s conservatives announced that they had finalized a coalition agreement. In the last government, the SDP was the junior partner of the conservatives, but this time around the SDP has extracted major concessions from Merkel, notably control of the powerful finance ministry. This will likely mark a shift in Germany’s eurozone policy, which had been marked by a conservative stance under former finance minister Wolfgang Schaeuble. The weaker members of the eurozone, such as Greece, will likely find a more sympathetic ear for financial help from the SDP than they did from Schauble. The coalition agreement still requires the consent of a majority of the 464,000 members of the SDP, but is expected to pass this final hurdle.

Market Jitters Remain/strong

EUR/USD Fundamentals

Thursday (February 8)

  • 2:00 German Trade Balance. Estimate 21.5B. Actual 21.4B
  • 3:45 German Buba President Weidmann Speaks
  • 4:00 ECB Economic Bulletin
  • 8:30 US Unemployment Claims. Estimate 232K
  • Tentative – US Mortgage Delinquencies
  • 10:30 US Natural Gas Storage. Estimate -116B
  • 13:01 US 30-year Bond Auction

Friday (February 9)

  • 2:45 French Industrial Production. Estimate 0.1%

*All release times are GMT

*Key events are in bold

 

EUR/USD for February 8, 2018

EUR/USD for February 8 at 5:45 EDT

Open: 1.2264 High: 1.2295 Low: 1.2232 Close: 1.2234

 

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1961 1.2092 1.2200 1.2286 1.2357 1.2481

EUR/USD edged higher in the Asian session. The pair has reversed directions in European trade and is moving downards

  • 1.2200 has switched to a support role after losses by EUR/USD on Tuesday
  • 1.2286 is the next resistance line

Further levels in both directions:

  • Below: 1.2200, 1.2092 and 1.1961
  • Above: 1.2286, 1.2357, 1.2481 and 1.2569
  • Current range: 1.2200 to 1.2286

OANDA’s Open Positions Ratio

EUR/USD ratio has shown strong movement towards long positions. Currently, short positions have a majority (57%), indicative of EUR/USD reversing directions and moving higher.

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.

Market Jitters Remain

Market Jitters Remain

US stocks toppled again on Wednesday in choppy and messy fashion after a dispirited US Treasury auction revived concerns about a hawkish Fed, unnerving investors already spooked after the rapid climb in US Treasuries apparently ignited a jump in the Cboe Volatility index.

A deplorable auction with meek demand pushed yields on 10-year US Treasuries to 2.84 percent, up four basis points, with traders now eyeing Monday’s a four-year high of 2.88 percent.

The market is now hedging against the Fed potentially leaning more hawkish which is explaining the uptick in USD and US yields.

There was a glimmer of hope earlier in the NY session that equities markets were finding a happy medium, but the equilibrium shattered as optimism gave way to more selling when Federal Reserve Doves see the inflationary lightbulb flicker.

Fed Evans, who dissented along with Kashkari on the December rate hike, has also embraced Kashkari’s new hawkish tone post-Friday’s earnings data. While his baseline remains a hold in rates until mid-year but with on crucial commonition: “In contrast, suppose inflation picks up more assuredly, as many expect. Then, we still could easily raise rates another three or even four times in 2018 if that were necessary. And I would support such a faster pace if the data point convincingly in this direction.”

Of course, this hawkish Fed discourse has elevated market chatter this morning centring on how the  Trump Administration could react if the USD parades higher on a more hawkish Fed. It certainly makes for exciting international intrigue  to the debate in the wake of comments from ECB member Nowotny who charged that the US Treasury is deliberately putting pressure on the USD

Oil Prices

Oil prices have been getting battered by forces beyond the nodding donkey of late. The weaker narrative has been underpinning prices, but with the market shifting to a more hawkish fed description the US dollar slide has come to a blunt halt is now weighing negatively on oil prices. Notwithstanding the unforeseen disorder in the broader financial system has seeped into the oil markets.

With Oil prices ones WTI fell abruptly after the U.S. government reported crude stockpiles rose by 1.9 million barrels. But its the deluge US production that remains the most significant menace to OPEC production cuts. The bottom line is the US crude production should keep hitting new highs throughout 2018 after reaching an all-time higher of 10.25 m barrels per day. 11’s are not that far away.

Gold Prices

Stronger US dollar and higher US Treasury yields have depressed demand for Gold overnight. And with equities souring and with prices continuing to melt away, gold markets could be susceptible to a stock market rebound.

The shifting Fed narrative that is gathering hawkish following could be the most significant thorn in the Gold Bulls side.

Currency Markets

Japanese Yen

The Yen will be traded like a puppet whose strings are manipulated by equities and fixed income price movements.

Australian Dollar

The risk-off moves from Monday’s equity plunge were enough to liquidate short USD and with continued broad de-risking assignments still being played out. I suspect the Aussie bulls with remain in time out corner until we get back above .7850 and a fraction of risk appetite returns. When you view every possible trade scenario as an ambush, probably best to tread cautiously.
The Malaysian Ringgit

The re-emergence of the Federal Reserve Board Hawks and Oil prices looking very susceptible to ramped up US shale oil production continues to weigh negatively on the MYR.

But indeed, the uptick in market volatility has tamed investors appetite, so bullish signals are far and few between

Plop Plop Fizz Fizz oh what a relief it is

Plop Plop Fizz Fizz oh what a relief it is

A case of turnaround Tuesday or merely the eye of the storm?
What a wild ride the past 48 hours !!  and of course the downward correction in equity market was always on the cards as a combination of multi-year high bond yields, and record highs in US equity markets were foolishly unsustainable. And with interest rates sure to be on the move, equity markets were first to blink. But the voraciousness of the purge is what had many scratching their head, but in reality, in this day of computer-driven algorithmic trading this is not the first nor will it be the last mini flash crash to come.

There was nothing that particularly stood out other than an abundance of inflationary wood chips that formed into combustible markets resulting in the sudden repricing of risk.

But at the end of day bargain hunters reemerged as S&P closed +1.74% with levels marking the area from which Monday’s late NY session sell-off begun.But with so much volatility lingering, equity market will have  lot’s of wood to chop  to restore investors confidence

Adding some calm to the proceedings St. Louis Fed President James Bullard, a non-voting member of the Federal Open Market Committee, attempted to dampen US rate hike euphoria stemming from Friday’s spike in average hourly earnings. He said, “I caution against interpreting good news from labour markets as translating directly into higher inflation.”

OIL

WTI oil prices recovered most of the afternoon losses, rising from $63.45/barrel at the close just shy of 64.0/ barrel in after-hours trading. API weekly crude inventories did not raise as much as forecast.
But near-term sentiment remains tethered to yo-yo strings with equities and the dollar providing the counterweights. Risk aversion does not bode well for oil prices and with all the chatter( including the November EIA report)  about US production ramping up there could be a growing propensity to move lower near-term

Gold

Gold prices hit session lows late Tuesday afternoon as U.S. stocks bounced back up. But with asset rotation from equity to bonds, gold prices did not benefit from this uptick in volatility as investors are erring on the more conservative Bond route given the market volatility. Equity gold hedged unwound in favour a more traditional bond market approach as investors opt to sit out this Volatility ( VIX) driven storm

Far too much volatility in the market and investors across all asset classes remain spooked
Currency Markets

The Japanese Yen

Traditional correlations are finally beginning to assert so we should look for shifting risk sentiment to dominate the forthcoming sessions.

The Euro

EURUSD is entering a period of consolidation in the short term and yesterday certainly matched that argument. But Reuters reports that a final coalition deal is expected at some point late Tuesday in Europe.

The Australian Dollar

The AUD bulls are still licking their wounds after, with the RBA’s dovish twist to guidance feeble retail sales and trade data. However, if you adhere to the Yuan -AUD correlations proxy, one should not exclude the Aussie dollar just yet as the currency is nowhere near down for the count.

The Chinese Yuan

Acting as a haven and rightly so as the CNH remains very resilient to broader US moves. The Pboc 2018 working conference statement has cemented the view that the Mainland is putting more emphasis on opening up Bond markets while promoting the liberalisation of the Yuan. A real win for foreign investors who are finally seeing the barrier to enter China capital markets gradually fall by the wayside.

·

The Malaysian Ringgit

We should not lose sight of the great strides that the Ringgit has made over the past 12 months and while investors confidence will be tested during this sudden uptick in volatility the Ringgit will be more than up for the task.

Malaysia economy remains robust; OIL prices remain firm.With that in mind, Equity and bond markets will continue to attract investors who want exposure in the Ringgit. AS we still hold the view that the Ringgit will be less susceptible to other regional currencies as the BNM could increase interest rates again, Malaysia is the most significant oil exporter, and the central bank welcomes a stronger MYR

Gold Ticks Lower, Investors Eye Nonfarm Payrolls

Gold has posted small losses in the Thursday session. In North American trade, the spot price for an ounce of gold is $1343.22, down 0.14% on the day. On the release front, employment data was positive, as unemployment claims dropped to 230 thousand, below the forecast of 237 thousand. ISM Manufacturing PMI slowed to 59.1, but still beat the estimate of 58.7 points. ISM Manufacturing PMI slowed to 59.1, but still beat the estimate of 58.7 points. On Friday, the spotlight will be on employment numbers, with the release of wage growth, nonfarm payrolls and the unemployment rate. As well, the US releases UoM Consumer Sentiment.

As expected, the Federal Reserve held the course on interest rate policy at its January meeting on Wednesday. In the rate statement, policymakers said that they expected the economy to continue to expand at a moderate pace and that the labor market would remain strong in 2018. What was more noteworthy was that the Fed predicted that inflation would rise to the Fed’s 2 percent target this year. This marks an upgrade in the inflation forecast, as the December statement said that inflation was expected to “remain somewhat below 2 percent.” Higher inflation is likely to open the door to tighter monetary policy, and the Fed appears on track for three or even four rate hikes in 2018, assuming that the US economy remains strong. This policy meeting was the last under Janet Yellen, as Jerome Powell will take over as Fed chair on February 3. The slightly hawkish tone of the rate statement has raised the odds of a rate hike to 83% when the Fed next meets in March.

Gold posted gains last week, taking advantage of a USD sell-off. However, the dollar has steadied this week, and gold prices are slightly lower. Since the start of the year, gold is up 2.2%, joining the major currencies which have posted gains against the greenback in 2018. This has been somewhat of a surprise, as the robust US economy has supported risk appetite, yet gold has not lost its luster early in 2018. Last week, gold climbed to $1366, its highest level since August 2016.

 

XAU/USD Fundamentals

Thursday (February 1)

  • 7:30 US Challenger Job Cuts. Actual -2.8%
  • 8:30 US Preliminary Nonfarm Productivity. Estimate +0.8%. Actual -0.1%
  • 8:30 US Preliminary Unit Labor Costs. Estimate 0.9%. Actual 2.0%
  • 8:30 US Unemployment Claims. Estimate 237K. Actual 230K
  • 9:45 US Final Manufacturing PMI. Estimate 55.5. Actual 55.5
  • 10:00 US ISM Manufacturing PMI. Estimate 58.7. Actual 59.1
  • 10:00 US Construction Spending. Estimate 0.4%. Actual 0.7%
  • 10:00 US ISM Manufacturing Prices. Estimate 68.3. Actual 72.7
  • 10:30 US Natural Gas Storage. Estimate -102B. Actual -99B
  • All Day – US Total Vehicle Sales. Estimate 17.2M

Friday (February 2)

  • 8:30 US Average Hourly Earnings. Estimate 0.2%
  • 8:30 US Nonfarm Employment Change. Estimate 181K
  • 8:30 US Unemployment Rate. Estimate 4.1%
  • 10:00 US Revised UoM Consumer Sentiment. Estimate 95.0

*All release times are GMT

*Key events are in bold

 

XAU/USD for Thursday, February 1, 2018

XAU/USD February 1 at 12:30 EST

Open: 1349.76 High: 1352.12 Low: 1352.50 Close: 1343.22

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1285 1307 1337 1375 1416 1433
  • XAU/USD showed little movement in the Asian session. The pair posted slight losses in European trade, but has recovered most of these losses in North American trade
  • 1337is providing support
  • 1375 is the next line of resistance
  • Current range: 1337 to 1375

Further levels in both directions:

  • Below: 1337, 1307, 1285 and 1260
  • Above: 1375, 1416 and 1433

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Thursday session. Currently, short positions have a majority (59%), indicative of trader bias towards XAU/USD reversing directions and moving lower.

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.