A nervous beginning to the start of the week

Monday October 22: Five things the markets are talking about

Global equities remain better supported this Monday morning after Chinese stocks surged overnight on senior officials verbal intervention.

The ‘mighty’ U.S dollar has eased a tad along with treasuries, while Italian bonds have rallied.

The EUR had found some early support on the back of a ratings decision by Moody’s Investors Service late last Friday who removed the immediate threat of a downgrade to ‘junk.’ The market now awaits on S&P’s review this Friday.

Nevertheless, risks remain, from tension surrounding the Khashoggi murder and the ongoing Sino-U.S trade showdown to Italian budget fears and President Trump’s unpredictability ahead of U.S midterm elections.

On tap for this week, the Bank of Canada (BoC) is expected to increase its policy rate by +25 bps to +1.75% on Wednesday (Oct 24) despite last Friday’s disappointing inflation and retail sales readings.

Elsewhere, the European Central Bank (ECB) is expected to leave policy unchanged, but questions regarding Italy and its budget issues are expected to be front and center.

In Scandinavia, Sweden’s Riksbank and Norway’s Norges bank take center stage mid-week.

Stateside, earnings season gathers pace with notable highlights including Amazon, Alphabet, Intel, Verizon, Microsoft, Twitter, McDonald’s, and Caterpillar.

1. Stocks in the black

Japan’s Nikkei edged higher, supported by a rally in Chinese stocks on the promise of additional stimulus measures, triggering buying in firms exposed to China. The Nikkei share average rallied +0.37%, moving off a six-week low hit during last Friday’s session. The index is now down around -7.5% since hitting a 27-year high on Oct. 2. The broader Topix edged +0.15% higher.

Down-under, Aussie stocks ended lower on Monday, as political concerns rattled investors after the governing coalition looks set to lose its one-seat majority in parliament following a weekend by-election. The S&P/ASX 200 index closed -0.6% lower. In S. Korea, the Kospi stock index climbed on Monday supported by a strong Chinese market. The index rallied +0.5%.

In China, stocks surged overnight in the wake of coordinated statements of support by senior regulators, and as China prepares to overhaul its income tax law for individuals. The benchmark Shanghai Composite index was +4.2% higher, while the blue-chip CSI300 index jumped +4.4%.

The gains extended to Hong Kong, where the Hang Seng index added +2.3% and the China Enterprises Index ended +2.6% higher.

In Europe, indices trade higher across the board. Italy’s FTSE MIB outperforms after Moody’s cut the countries rating to the lowest investment grade, but put the outlook as stable, helping BTP futures rally.

U.S stocks are set to open in the ‘black’ (+0.1%).

Indices: Stoxx600 +0.22% at 362.02, FTSE +0.26% at 7,066.00, DAX +0.52% at 11,614.01, CAC-40 +0.24% at 5,096.82, IBEX-35 +0.73% at 8,957.30, FTSE MIB +0.66% at 19,205.50, SMI +0.30% at 8,892.50, S&P 500 Futures +0.18%

2. Brent oil back above $80 as Iran sanctions loom

Brent crude oil prices remain better bid as markets are expected to tighten once U.S sanctions against Iran’s crude exports come into effect in November.

Brent crude oil futures are at +$80.26 a barrel, up +48c, or +0.6%, above Friday’s close. U.S West Texas Intermediate (WTI) crude futures are at +$69.60 a barrel, up +48c, or +0.7%.

Note: The U.S sanctions on Iran, the third-largest producer in OPEC, are set to start on Nov. 4.

OPEC agreed in June to boost supply to make up for the expected shortfall in Iranian exports, however, recent data suggests that OPEC is struggling to add barrels as an increase in Saudi supply was offset by declines elsewhere.

Nevertheless, relief may come from the U.S, where offshore drillers added four oilrigs in the week to Oct. 19, bringing the total count to 873, according to Baker Hughes data on Friday. After months of stagnation, U.S crude production is expected to rise.

However, undermining sentiment is weaker China growth data and the ongoing Sino-U.S trade dispute. The full impact of the trade war is expected to hit markets early next year and provide a considerable drag on oil demand.

Ahead of the U.S open, gold prices have edged higher overnight towards their three-month peak hit last week, as the ‘big’ dollar eased and worries over rising political tensions slowing global economic growth lent support to the ‘yellow’ metal. Spot gold is up +0.1% at +$1,226.52 an ounce, while U.S. gold futures are also up +0.1% at +$1,229.50 an ounce.

3. Italian yields drops by most in 4-months on Moody’s decision

Italian sovereign yields dropped across the curve after ratings agency Moody’s kept the country’s sovereign ratings outlook ‘stable’ while delivering an expected downgrade last week. The market was worried that the outlook would be ‘negative.’

Note: S&P’s review is expected this Friday (Oct 26). It now rates the country two notches above junk at BBB.

Italy’s five-year BTP yield dropped -36 bps to a two-week low of +2.63%, while the benchmark 10-year yield was -26.5 bps lower at +3.39%, its biggest daily drop in four-months. The BTP/Bund 10-year yield spread tightened to +284 bps.

Elsewhere, the yield on the U.S 10-year note rose +1 bps to +3.20%, while Germany’s 10-year Bund yield increased + 2bps to +0.48%. In the U.K, the 10-year Gilt yield climbed +1 bps to +1.588%.

4. Dollar quiet across the board

The EUR/USD is a tad lower at €1.1515 after testing a high of €1.1550 overnight on the back of a relief rally in the 10-year BTP/Bund spread. Nevertheless, event risk persists ahead of the deadline for Italy to respond to the E.U Commission’s initial objections over the 2019 budget plan.

Expect Thursday’s ECB meeting to be closely watched, especially Draghi’s press conference, where the market is looking for more color on how the ECB would reinvest maturing QE proceeds post December this year.

GBP/USD is -0.3% lower at £1.3030 as Brexit talks again reached an impasse. However, PM Theresa May believes that +95% of the Brexit withdrawal deal is “now settled.” It’s believed that the PM is facing a rebellion by more than 40 Tory MP’s if she does not back down to fresh demands from Brexiteers’

Note: 48 votes are necessary for a leadership challenge

5. Italy says it’s ready to discuss budget with E.U authorities

The Italian government is ready to sit and discuss its budget targets with E.U, Deputy Prime Minister Luigi Di Maio said this morning, restating that the “populist” coalition had no plan to leave the euro.

Italy has sent a letter to the commission explaining its reasons for sticking to the +2.4% goal, and that the government was ready to “sit at the table”.

Note: Italy wants to hike its budget deficit to +2.4% from this year’s +1.8%. Last week, the E.U Commission labeled Italy’s 2019 draft budget an “unprecedented breach of EU fiscal rules.”

Forex heatmap

US Growth in Q3 to Guide Dollar

The US dollar is mixed on Friday. Investor’s appetite for risk rose and safe haven currencies (JPY and CHF) fell while positive China and Brexit news saw the NZD, EUR, GBP and AUD advance against the USD. The Canadian dollar was dragged down in the last trading day of the week after softer than expected retail sales and inflation data. Next week’s Bank of Canada (BoC) monetary policy meeting is anticipated to bring a 25 basis point rate hike. Despite the miss inflation has been above the central bank’s target and businesses are optimistic about strong sales.

  • BoC expected to hike interest rate to 1.75%
  • German Business Climate to cool down
  • US first estimate of Q3 GDP to confirm solid growth

Euro Caught Between Brexit and Italian Budget

The EUR/USD fell 0.41 percent in the last five days. The single currency is trading at 1.1510 after rising on Friday due to a combination of softer US housing data and positive Brexit News. The gradual pace of rate lifts by the U.S. Federal Reserve had a negative impact on previously owned homes in September.



The euro rallied on Friday after a report that Theresa May’s government is ready to drop the time limit demand on the Irish border. The EU and the UK are said to be close to a deal, 90 percent by the estimate of the EU’s top negotiator, but the final 10 has proven hard to agree on.

Italian budget issues continue to drag on the euro. The threat of a downgrade of Italian debt does not seem to faze local politicians that are ready to square off against Brussels.

The European Central Bank (ECB) will publish its main refinancing rate and host a press conference on Thursday, October 25. No changes are expected, but investors need to be aware of the tone of the press conference as Mario Draghi could push a more dovish rhetoric.

Loonie to get BoC Rate Hike Boost

The USD/CAD fell 0.74 percent in a weekly basis. The currency pair is trading at 1.3117 and will look at the Bank of Canada (BoC) for support. The central bank is highly anticipated to announce a 25 basis points interest rate hike. The central bank has lifted rates twice in 2018 and rising inflation is forcing the hand of the BoC.


Canadian dollar weekly graph October 15, 2018

The rate decision has been priced in for some time, but the fundamental picture has worsened reducing the probabilities of a rate hike while still at near 80 percent. The NAFTA renegotiation was a big risk keeping the BoC awake at night, and with the USMCA some of that risk is lifted.

With inflation data lower than forecasted it now validates the gradual approach of the BoC and unless there is hawkish rhetoric from Governor Poloz, the loonie will continue to underperform against the USD.

Oil Drops as US Weekly Buildup Pressures Prices

West Texas Intermediate lost 0.95 percent this week. WTI is trading at $69.36 after staring a rebound on Friday due to surging Chinese demand. Supply concerns continue to guide daily price action. The US weekly inventories showed a buildup last week and pushed prices lower. Iranian exports have been cut ahead of the start of US sanctions, but there are reports that OPEC and other major producers are already closing the gap.



Saudi Arabia is embroiled in a diplomatic scandal and is quickly losing the goodwill it gained for having engineered price stability with the production cut agreement. The OPEC and major producers agreed to limit output to stop the free fall in energy prices and have extended the agreement to this year.

Trade war concerns eased on Friday as China and the US have agreed to meet during the sidelines of the G20 meeting in Buenos Aires. The leaders of the two nations will fly in a day ahead of the event to try and mend the trade relationship.

Gold Rises for Third Week Straight

Gold rose 0.6 percent last week. The yellow metal is trading at $1,229.40 despite gradual rate hike talk by Fed members and the minutes form the September FOMC. The rebound of the stock market correlated with the rise of the yellow metal. Safe haven appetite in gold holdings has returned and in a market with no shortage of geopolitical risk for the remainder of the year the yellow metal is set to continue on its rise.



Market events to watch this week:

Wednesday, October 24
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:00am CAD Overnight Rate
11:15am CAD BOC Press Conference
Thursday, October 25
7:45am EUR Main Refinancing Rate
8:30am EUR ECB Press Conference
8:30am USD Core Durable Goods Orders m/m
Friday, October 26
8:30am USD Advance GDP q/q

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

CAD plummets on disappointing retail sales and weak inflation

Canadian inflation slowed significantly last month as temporary factors that lifted the cost of gas and air travel dissipated.

Canada’s CPI climbed +2.2% y/y, following a +2.8% increase in August and a +3% climb in July.

The market was looking for a solid +2.7% gain in September.

On a month-over-month basis, CPI declined -0.4%.

Digging deeper, the Bank of Canada (BoC) three preferred measures supporting inflation also weakened - core-inflation prices rose in a range from +1.9% to +2.1% for an average of +2.0%, down from the previous month’s +2.1% average.

Despite this morning miss, the headline annual inflation rate in Canada has come in +2%+ for eight consecutive month.

Canada retail sales miss

Canadian retail sales fell unexpectedly in August, led mostly by gas stations receipts declines.

Canada retail sales fell -0.1% in August, m/m, to a seasonally adjusted +C$50.76B. The market was looking for a +0.3% rise.

In volume terms, retail sales declined by a steeper -0.3% in August.

The previous month’s data were revised downward, and indicated receipts rose +0.2% vs. +0.3% estimate.

On the release, the CAD came under immense, trading at C$1.3030 before the headlines to C$1.3116.

Next up, the BoC monetary policy announcement is next Wednesday (Oct 24). Despite a weaker retail sales and inflation, the market is currently pricing in another +25 bps hike by Governor Poloz.

USD/CAD – Canadian dollar gains ground ahead of CPI, retail sales

The Canadian dollar has posted gains in the Friday session, erasing most of the losses sustained on Thursday. Currently, USD/CAD is trading at 1.3030, down 0.42% on the day. On the release front, Canadian consumer indicators are in the spotlight and traders should be prepared for volatility from the Canadian dollar during the North American session. After a shocking decline in August, CPI for September is expected to gain 0.1%. Retail Sales is forecast to remain at 0.3%, but Core Retail Sales is expected to drop sharply to just 0.1%, compared to 0.9% in August. In the U.S, there are no key releases. Existing Home Sales is expected to drop to 5.29 million.

Employment numbers are important leading indicators of consumer spending, and there was good news on Thursday, ahead of key Canadian retail sales reports on Friday. ADP nonfarm payrolls jumped 28.8 thousand in September, up from 13.6 thousand a month earlier. Will the retail sales numbers also point higher? The Bank of Canada will be carefully monitoring the retail sales and CPI releases, ahead of a policy meeting next week. The markets are expecting the BoC to raise rates by a quarter-point, which would mark the third rate increase in 2018. With Canada, the U.S and Mexico about to enter the USMCA, which replaces the NAFTA pact, the last obstacle for the BoC on the path to normalization has been removed and analysts are now expecting three rate hikes in 2019, up from a forecast of two hikes just a few months ago.

The U.S dollar is broadly higher on Thursday, after a hawkish tone from the Federal Reserve minutes. The minutes indicated that a majority of members want to continue raising interest rates until the U.S economy shows signs of slowing down. However, the duration of a tighter policy remains unclear, as the minutes noted that “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.” This would likely be around the 3 percent level, which will not be reached until the second half of 2019, as the Fed has indicated it will raise rates three times next year. At the September meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes. As rates approach the “neutral rate”, we could see further changes in language at upcoming policy meetings.

China offers verbal support as growth hits lowest in nearly a decade

Asia rebound leads europe higher

Pick your poison

USD/CAD Fundamentals

Friday (October 19)

  • 8:30 Canadian CPI. Estimate 0.0%
  • 8:30 Canadian Core Retail Sales. Estimate 0.1%
  • 10:00 US Existing Home Sales. Estimate 5.29M

*All release times are DST

*Key events are in bold

 

USD/CAD for Friday, October 19, 2018

USD/CAD, October 19 at 7:30 DST

Open: 1.3086 High: 1.3089 Low: 13037 Close: 1.3030

 

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2733 12831 1.2970 1.3067 1.3198 1.3292

USD/CAD posted has ticked lower in the Asian session and has recorded stronger losses European trade

  • 1.2970 is providing support
  • 1.3067 has switched to a support role following losses by USD/CAD on Friday
  • Current range: 1.2970 to 1.3067

Further levels in both directions:

  • Below: 1.2970, 1.2831, 1.2733 and 1.2649
  • Above: 1.3067, 1.3198 and 1.3292

EUR/USD – Euro halts slide as current account impresses

EUR/USD has steadied on Friday, after posting considerable losses in two straight sessions. Currently, the pair is trading at 1.1447, down 0.04% on the day. It’s a quiet end to the week, with no key releases on the schedule. The eurozone current account surplus widened from EUR 21.3 billion to 23.9 billion. This easily beat the estimate of EUR 21.4 billion. In the U.S, Existing Home Sales is expected to drop to 5.29 million.

Italy’s draft budget has become a major headache for EU officials, and the crisis could escalate. The budget, which boosts public spending and cuts taxes, would raise the country’s deficit, which breaches EU rules. The government has sent the budget for approval to the European Union. On Thursday, the European Commission told Italy that the budget was not acceptable, and demanded a reply by Monday. This could put Rome and Brussels on a collision course, and the sour mood has sent Italian bond prices higher. The yield on 10-year Italian bonds stands at 3.73%, some 3.33% over the equivalent German bonds, as the gap between the two continues to widen. Bond prices in Spain, Portugal and Greece have also increased, making investors nervous. Italy’s debt stands at an astounding 132% of GDP, and there is a real risk that the country’s financial woes could destabilize the entire eurozone.

The Federal Reserve minutes from the September meeting showed that a majority of members want to continue raising interest rates until the U.S economy shows signs of slowing down. However, the duration of a tighter policy remains unclear, as the minutes noted that “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.” This would likely be around the 3 percent level, which will not be reached until the second half of 2019, as the Fed has indicated it will raise rates three times next year. At the September meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes. As rates approach the “neutral  rate”, we could see further changes in language at upcoming policy meetings.

China offers verbal support as growth hits lowest in nearly a decade

Asia rebound leads europe higher

 

EUR/USD Fundamentals

Friday (October 19)

  • 4:00 Eurozone Current Account. Estimate 21.4B. Actual 23.9B
  • 10:00 US Existing Home Sales. Estimate 5.29M
  • 12:00 US FOMC Member Bostic Speaks

*All release times are DST

*Key events are in bold

 

EUR/USD for Friday, October 19, 2018

EUR/USD for October 19 at 5:35 DST

Open: 1.1452 High: 1.1470 Low: 1.1441 Close: 1.1447

 

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1190 1.1300 1.1434 1.1553 1.1611 1.1735

EUR/USD was flat in the Asian session. The pair has posted small losses in European trade

  • 1.1434 is under pressure in support
  • 1.1553 is the next line of resistance

Further levels in both directions:

  • Below: 1.1434, 1.1300 and 1.1190
  • Above: 1.1553, 1.1611, 1.1735 and 1.1840
  • Current range: 1.1434 to 1.1553

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.

China offers verbal support as growth hits lowest in nearly a decade

 

China to the rescue

Asian equity markets fared much better than their US counterparts did yesterday, mostly helped by comments out of China. Before the markets opened, we heard coordinated voices from the heads of China’s securities regulator (CSRC), the banking and insurance regulator and the central bank. The chief of CSRC said that China will support non-state backed listed companies, while the PBOC governor said low market valuations and market volatility are caused by investor sentiment and were not in line with China’s economic fundamentals. He added that the central bank will support financing to non-state backed firms.

 

China50 Daily Chart

Source: Oanda fxTrade

 

Investors interpreted the comments to imply official money would be flowing into the market, so the local index started off in the black, and powered ahead to gains of more than 1.8% at one stage. This filtered through Asian bourses, with the Japan225 index currently up 0.3%, the HongKong33 index gaining 1.1% and the Australia200 index adding 0.8%. The NAS100 index, the worst hit of the US indices yesterday, rose 0.2%.

 

China data disappoints

China recorded GDP growth of 6.5% y/y for the third quarter, below estimates of 6.6% and down from Q2’s 6.7% rate. That was the slowest rate of growth since Q1 2009, when the Global Financial Crisis was in full swing. China’s Statistics Bureau laid the blame squarely on the trade war, saying the “extremely complex and severe international situation” was a drag on growth.

In other data, industrial production slowed to +5.8% y/y in September, the weakest since February 2016, while retail sales provided the only bright spot, rising 9.2% y/y, better than the 9.0% predicted in a poll of economists, and the fastest pace in five months.

The Aussie took an initial knee-jerk dip after the GDP numbers, hitting the lowest in more than a week, but soon recovered amid the positive sentiment across equity markets. However, AUD/USD has yet to regain the 200-hour moving average at 0.7113, which has actively guided the pair over the past five sessions.

 

AUD/USD Hourly Chart

Source: Oanda fxTrade

 

Asia Market update: China data

Canada’s consumer prices on tap

Euro-zone current account data for August is the only main event on the European calendar today, which is expected to show a larger surplus of EUR21.4 billion from EUR21.3 billion in July. Consumer prices from Canada for September headline the North American session, with both the official readings and the Bank of Canada core readings due.

Watch out for speeches from Fed’s Kaplan (dove, non-voter) and Bostic (dove, voter) today, though neither is expected to deviate from the Fed’s current view on the rate path amid a strong economy. A speech from Bank of England’s Carney completes the week.

You can view the full MarketPulse data calendar at https://www.marketpulse.com/economic-events/

 

Have a great weekend from Asia.

Dollar Higher Amid Uncertainty and Fed Comments

The US dollar is higher against most major pairs on Thursday. The greenback is only down against the Japanese Yen which rose 0.42 percent. Geopolitics and a strong dollar combined to keep stock markets under pressure. The investigation on the disappearance of journalist Jamal Khashoggi, US-China concerns, Brexit, Italian budget comments and the aftermath of the release of the Fed minutes are dictating market moves as investors look for safe haven assets.

The US Treasury Department published its currency report yesterday, and while not outright calling China a currency manipulator it did focus on past intervention and was first on a list of 6 countries on the monitoring list. The language was tougher and the emphasis on the trade deficit signals the current trade dispute between the two nations will not be resolved in the short term. The US and China are preparing talks at the G20 meeting next month.

The news that US Secretary pulled out of the Saudi Arabia investment conference after discussing with President Trump and Secretary Pompeo is seen as a conciliatory move from the administration to politicians who have called for some distance from the Middle East nation. Mnuchin joins a long list of businessmen and leaders who have excused themselves amid the disappearance of Khashoggi.

GBP - Pound Lower as Brexit Shows Sides are too far Apart

Sterling is down 0.63 percent against the greenback. Theresa May is still optimistic a “good deal” can be reached, but the reality appears to show the UK and the EU are too far apart with a fast approaching deadline and the currency market is reflecting that. Earlier the UK PM said that the EU proposal on the Irish border was unacceptable.



The EU and the UK have kept an optimistic demeanour when discussing the divorce with the press, but there does not seem to be that much progress from either side. The best so far have been extensions, and as the DUP party said extending the deadline will not solve the Irish backstop problem.

ECB President Mario Draghi said today that he sees Brexit’s effect as limited for the European economy with a higher risk coming from EU budget rules being challenged.

EUR - Italian Budget Giving Euro Headaches

Italian budget comments from the EU commission pushed Italian bonds lower as the stand off between Brussels and Rome continues. Italian PM Conte will hold a meeting on Saturday to go over the already proposed budget. The EU commission is calling the proposal a “unprecedented deviation” from EU’s budget rules.



The single currency fell 0.29 percent on Thursday against the US dollar. The Italian budget drama put the euro in a corner as the release of the minutes from the latest Federal Open Market Committee (FOMC) and comments from voting and non-voting members support more US interest rate lifts.

CAD - Loonie Under Pressure Ahead of Retail Sales and Inflation

The Canadian dollar fell 0.49 percent on Thursday as Fed rhetoric and risk aversion drove the USD higher. CAD traders will be on the lookout for Canadian retail sales and inflation data due out on Friday. The data is not expected to impress, but rather continue to show a solid pace of growth in the economy validating the upcoming decision by the Bank of Canada (BoC). The central bank is heavily anticipated to lift rates by 25 basis points next week from the current 1.50 percent benchmark.


usdcad Canadian dollar graph, October 18, 2018

OIL - Crude Falling as Suppler Fears Ease

Oil prices had bumpy ride on Thursday. Crude was on the decline at 9am in the morning, but the bounce in US stocks pulled oil out of sessions lows. The bounce did not last long and by 2pm West Texas Intermediate was trading below $69 with Brent holding on to gains a little better at $79.67.

Oil prices are caught between supply concerns triggered by geopolitics and rising stockpiles in the US with a possible supply rise by other major producers. The US sanctions against Iran boosted prices even as the Trump administration tried to convince OPEC members to drive costs down. The latest diplomatic turmoil surrounding missing journalist Jamal Khashoggi puts Saudi Arabia under intense focus from global leaders.

US weekly inventories released by the Energy Information Administration (EIA) on Wednesday showed a larger than expected buildup that further depreciated oil prices. Growth concerns as trade disputes are not resolved have started to impact energy demand even as supply is tighter.

Weather and geopolitics have been the main factors behind supply disruptions, and without a significant change upward to demand, crude will be more sensitive to political events, specially if it’s based on a major producer.

GOLD - Gold Retaking Safe Haven Crown

Gold rose on Thursday as risk aversion gripped the market. The yellow metal is trading higher after reclaiming its place as a safe haven during times of uncertainty. Gold is rising despite the Fed signalling more upcoming rate hikes to the US interest rate, but geopolitical factors are keeping the metal bid.

Gold is trading at 1,229.60 and will head into the Friday session having gained 0.61 percent. The US dollar is expected to keep its upward trend, specially as investors will not want to have short exposures going into the weekend. Gold’s appeal as a safe haven could reduce the pressure from the USD, considering the various geopolitical events playing out around the globe.

Oil Prices on Rollercoaster as USD Rebounds and Supply Concerns Ease

Oil prices had bumpy ride on Thursday. Crude was on the decline at 9am in the morning, but the bounce in US stocks pulled oil out of sessions lows. The bounce did not last long and by 2pm West Texas Intermediate was trading below $69 with Brent holding on to gains a little better at $79.67.


West Texas Intermediate graph

Oil prices are caught between supply concerns triggered by geopolitics and rising stockpiles in the US with a possible supply rise by other major producers. The US sanctions against Iran boosted prices even as the Trump administration tried to convince OPEC members to drive costs down. The latest diplomatic turmoil surrounding missing journalist Jamal Khashoggi puts Saudi Arabia under intense focus from global leaders.


West Texas Intermediate graph

US weekly inventories released by the Energy Information Administration (EIA) on Wednesday showed a larger than expected buildup that further depreciated oil prices. Growth concerns as trade disputes are not resolved have started to impact energy demand even as supply is tighter.

Weather and geopolitics have been the main factors behind supply disruptions, and without a significant change upward to demand, crude will be more sensitive to political events, specially if it’s based on a major producer.

XAU/USD – Gold unchanged as jobless claims within expectations

Gold is trading sideways in the Thursday session. In North American trade, the spot price for one ounce of gold is $1223.17, up 0.02% on the day. On the release front, key indicators beat their estimates. The Philly Fed Manufacturing Index dropped to 22.2, above the estimate of 19.7 points. On the employment front, jobless claims dropped to 210 thousand, just below the estimate of 211 thousand.

The markets were treated to a hawkish message from the Federal Reserve minutes. The minutes indicated that a majority of members want to continue raising interest rates until the U.S economy shows signs of slowing down. However, the duration of a tighter policy remains unclear, as the minutes noted that “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.” This would likely be around the 3 percent level, which will not be reached until the second half of 2019, as the Fed has indicated it will raise rates three times next year. At the September meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes. As rates approach the “neutral rate”, we could see further changes in language at upcoming policy meetings.

 

XAU/USD Fundamentals

Thursday (October 18)

  • 8:30 US Philly Fed Manufacturing Index. Estimate 19.7. Actual 22.2
  • 8:30 US Unemployment Claims. Estimate 211K. Actual 210K
  • 10:00 US CB Leading Index. Estimate 0.5%
  • 10:30 US Natural Gas Storage. Estimate 85B
  • 12:15 US FOMC Member Randal Quarles Speaks

*All release times are DST

*Key events are in bold

XAU/USD for Thursday, October 18, 2018

XAU/USD October 18 at 10:05 DST

Open: 1222.48 High: 1226.34 Low: 1218.74 Close: 1223.17

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1170 1204 1220 1236 1261 1284

XAU/USD showed little movement in the Asian session. In European trade, the pair edged lower but then recovered. XAU/USD is steady in the North American trade

  • 1220 was tested earlier in support
  • 1236 is the next resistance line
  • Current range: 1220 to 1236

Further levels in both directions:

  • Below: 1220, 1204, 1170 and 1146
  • Above: 1236, 1261 and 1284

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 – British pound dips on weak retail sales

GBP/USD is slightly lower in the Thursday session, after considerable losses on Wednesday. In North American trade, the pair is trading at 1.3099, down 0.14% on the day. On the release front, British retail sales dropped 0.8%, weaker than the estimate of -0.4%. In the U.S, key indicators beat their estimate. The Philly Fed Manufacturing Index dropped to 22.2, above the estimate of 19.7 points. On the employment front, jobless claims dropped to 210 thousand, just below the estimate of 211 thousand. On Friday, Britain’s deficit is expected to narrow to GBP 4.6 billion and BoE Governor Mark Carney speaks at an event in New York.

British consumer indicators softened in September, and that could mean downwinds for the British pound. GBP/USD slipped 0.53% on Wednesday, as British CPI dropped to 2.4% in September, down from 2.7% in August. This marked a three-month low, but inflation still remains above the BoE target of 2 percent. A sharp decline in retail sales on Thursday could add to the pound’s downside risk, as the soft consumer numbers together with Brexit anxiety could dampen investor risk appetite.

Leaders attending an EU summit would all agree that Brexit is a critical issue, but it’s unlikely that the EU will issue a draft statement on Brexit, due to the deadlock in negotiations. The European leaders sounded pessimistic about reaching a deal, unless Theresa May brings fresh proposals to the table. With only five months until Britain departs the EU, the likelihood of a no-deal scenario is very real. France has published a draft bill that allows the government to impose custom inspections and visa requirements on British visitors, in the event that no deal is reached. There has been little progress on the thorny issue of the Irish border. The EU is insisting that it will not sign a withdrawal agreement with Britain, unless there is a backstop which allows Northern Ireland to remain in a customs union with the EU after Brexit. However, the British government is unlikely to agree to such a move, since it would require regulatory barriers within the United Kingdom. In a conciliatory move, Michel Barnier, chief Brexit negotiator for the EU, offered to extend the transition phase by 12 months, which would leave it in place until December 2021. This would give the sides more time to work on the shape of a new customs union as well as outstanding issues. On the European side, the mood over Brussels is so sour that officials are saying that they may not hold a November summit, unless substantial progress is made in the next several weeks.

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GBP/USD Fundamentals

Thursday (October 18)

  • 4:30 British Retail Sales. Estimate -0.4%. Actual -0.8%
  • 8:30 US Philly Fed Manufacturing Index. Estimate 19.7. Actual 22.2
  • 8:30 US Unemployment Claims. Estimate 211K. Actual 210K
  • 10:00 US CB Leading Index. Estimate 0.5%
  • 10:30 US Natural Gas Storage. Estimate 85B
  • 12:15 US FOMC Member Randal Quarles Speaks

Friday (October 19)

  • 4:30 British Public Sector Net Borrowing. Estimate 4.6B
  • 12:10 BoE Governor Mark Carney Speaks

*All release times are DST

*Key events are in bold

GBP/USD for Thursday, October 18, 2018

GBP/USD October 18 at 9:45 DST

Open: 1.3115 High: 1.3116 Low: 1.3077 Close: 1.3099

 

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2723 1.2852 1.2966 1.3173 1.3301 1.3447

GBP/USD ticked lower in the Asian session. The pair posted gains in European trade but gave up most of these gains. GBP/USD is steady in North American trade

  • 1.2966 is providing support
  • 1.3173 is the next resistance line
  • Current range: 1.2966 to 1.3173

Further levels in both directions:

  • Below: 1.2966, 1.2852 and 1.2723
  • Above: 1.3173, 1.3301, 1.3447 and 1.3527

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.