Tag: Commodities

Gold Unsteady as Investors Await FOMC Minutes

Gold continues to hug the $1290 line in Wednesday session, where it has hovered for much of the week. Earlier in the day, gold moved close to $1300 but has since retracted. In North American trade, the spot price for one ounce of gold is $1291.20, down 0.01% on the day. New Home Sales dropped to 662 thousand, well off the estimate of 680 thousand. Later in the day, the Federal Reserve releases the minutes from the May policy meeting. On Thursday, the US will publish unemployment claims and Existing Home Sales.

The Federal Reserve will be in the spotlight on Wednesday, as analysts pore over the minutes of the May policy meeting. The Fed did not raise rates at the meeting, but a strong US economy has raised expectations that the Fed will press the rate trigger in June – according to the CME Group, the odds of a June hike stand at 100%. The markets will be looking for some guidance from the May minutes, and if the message from Fed policymakers is hawkish, traders can expect the US dollar to post gains. On Monday, Atlanta Fed President Raphael Bostic sounded positive about the economy, saying the Fed’s employment and inflation goals were close to being met. The Fed expects growth to be around 2.5% in 2018, and inflation has been moving closer to the Fed target of 2.0%.

Earlier this week, there seemed to be some positive momentum regarding the US-China trade talks. However, President Trump voiced skepticism over progress in the negotiations, saying he was ‘not really’ satisfied with the results. Trump’s comments have confused the markets, as Treasury Secretary Steven Mnuchin declared on the weekend that the trade spat was ‘on hold’. The remarks spooked Asian and European stock markets on Wednesday. Investor risk appetite has also waned as there is uncertainty whether North Korean leader Kim Jong-un will meet with President Trump next month. On Tuesday, Trump acknowledged that there was a ‘substantial’ chance that the summit planned with Kim in Singapore on June 12 would not take place. Gold has been unable to take advantage of the nervousness in the markets, as it was unable to consolidate a move towards $1300 on Wednesday, and has fallen back to around $1290.

 

XAU/USD Fundamentals

Wednesday (May 23)

  • 9:45 US Flash Manufacturing PMI. Estimate 56.6. Actual 56.6
  • 9:45 US Flash Services PMI. Estimate 54.9. Actual 55.7
  • 10:00 US New Home Sales. Estimate 680K. Actual 662K
  • 10:30 US Crude Oil Inventories. Estimate -2.5M. Actual
  • 14:00 US FOMC Meeting Minutes

Thursday (May 24)

  • 8:30 US Unemployment Claims. Estimate 220K
  • 10:00 US Existing Home Sales. Estimate 5.56M

*All release times are DST

*Key events are in bold

 

XAU/USD for Wednesday, May 23, 2018

XAU/USD May 23 at 11:00 DST

Open: 1291.41 High: 1298.41 Low: 1288.02 Close: 1291.20

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1236 1260 1285 1307 1337 1375

XAU/USD showed little movement in the Asian session. The pair posted gains in European trade but has retracted in the North American session

  • 1285 is providing support
  • 1307 is the next resistance line
  • Current range: 1285 to 1307

Further levels in both directions:

  • Below: 1285, 1260 and 1236
  • Above: 1307, 1337, 1375 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged in the Wednesday session. Currently, long positions have a majority (69%), indicative of trader bias towards XAU/USD breaking out and moving to higher ground.

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.

Another Turkish Lira flash crash

Another Turkish Lira flash crash  

A busy start to the session dealing with yet another mini TRY flash crash as the bad Lira news continues to compound. Otherwise, global Forex and fixed income markets remain in neutral  overnight and predictably focused on the upcoming FOMC minutes

The Turkish Lira meltdown. As far as I can tell was little more than a liquidity crunch reminding the Efx space again just how weak liquidity is during less than ideal times. As usual, the predictably fall out from the TRYJPY carry trade  has kept my desk hoping this morning

President Trump was keen to remind us overnight that trade war is not about to leave the stage anytime soon declaring he is  “not pleased” with the results of China trade but sees them as “a start.” Which then triggered a subtle risk reversal on US equities leaving investors rudderless and prone  heading into today’s Asia session

Oil Markets 

Oil prices had taken a respite although their far-reaching implications across asset classes most likely contributed to denting equity sentiment when Washington suggested oil prices have gone too far. With US gas prices jumping to 3 dollars per barrel in the states ahead of peak driving season, the political backlash not to mention the likelihood surging oil prices will sap some momentum from the US economy has caught the US administrations attention. Which of course puts more focus on Vienna Group’s decisions on whether and when to increase production in response to the latest supply shocks from Iran and Venezuela

Gold Markets
The US dollar continues to drive the Gold bus as a short covering US dollar rally has tentatively lifted the gold bulls spirits. But the market remains mired in no man’s land as the break fo 1300 did create enough of a fire sale to shock gold market into submission. The markets will not shift to the FOMC minutes for inflation updates as any suggestion that the Feds do see a pick up beyond their 2% target could be interpreted bullishly for Gold which should find support as an inflation hedge

Currencies

EUR: challenging to avoid the excessive noise around the Italian political scene but the focus remains on the FOMC and ECB statement.

JPY: USDJPY is coming off rather aggressively this morning as more disclosures have been noted from PM Abe stemming from the Kake school scandal. Attention remains focused on the Nikkei which is cratering this morning and triggering some interday USDJPY stop losses below 110.75 in this mini-meltdown. Liquidity has been thin post TRYJPY meltdown, so this could be exacerbating moves, but we should expect some ” bargain hunting below 110.50 to keep the movement contained at least for the short term

MYR: Profit taking on the broader USD with US bond yields remain stable has improved local sentiment however the market is in desperate need of fiscal clarity, and this fact alone will hold foreign investors at bay despite some desirable levels on both bond and currency markets. Despite foreign investors shying the local markets, domestic funds have been significant equity buyers which continues to underpin domestic sentiment.

Gold Listless as Investors Look for Cues

Gold is almost unchanged in the Tuesday session. In North American trade, the spot price for one ounce of gold is $1292.77, up 0.01% on the day. It’s another quiet day on the release front, with no key indicators. The sole event was the Richmond Manufacturing Index, which jumped to 16, well above the estimate of 9 points. On Wednesday, the Federal Reserve will release the minutes of its May policy meeting.

The trade battle between the US and China has taken a pause, and that could spell trouble for safe-haven gold. After weeks of sharp rhetoric and stiff tariffs, there was a breakthrough of sorts on Sunday. US Treasury Secretary Steven Mnuchin announced that the two sides had made significant progress and the trade war was being ‘put on hold’. Just last week, the White House sounded pessimistic about a deal being reached with China. The two economic giants have imposed tariffs on one another in recent weeks, worth billions in trade. These moves had raised fears of a bilateral trade war between the two largest economies in the world. The respite means that the sides are talking to each other, and that meant that the US can air its grievance over its massive trade deficit with China, which President Trump has long complained is a result of a non-level playing field. In addition to the trade deficit, the US wants to discuss technology transfers and cyber theft.

Gold prices continue to show little movement, but that could change on Wednesday, when the Federal Reserve releases the minutes of its policy meeting earlier in May. The Fed did not raise rates at the meeting, but a strong US economy has raised expectations that the Fed will press the rate trigger in June – according to the CME Group, the odds of a June increase stand at 95%. The markets will be looking for some guidance from the May minutes, and if the minutes are hawkish, traders can expect the dollar to post gains against its rivals.

XAU/USD Fundamentals

Tuesday (May 22)

  • 9:59 US Richmond Manufacturing Index. Estimate 9. Actual 16

Wednesday (May 23)

  • 10:00 US New Home Sales. Estimate 680K
  • 14:00 US FOMC Meeting Minutes

*All release times are DST

*Key events are in bold

XAU/USD for Tuesday, May 22, 2018

XAU/USD May 22 at 12:10 DST

Open: 1292.33 High: 1293.15 Low: 1291.13 Close: 1292.77

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1236 1260 1285 1307 1337 1375

XAU/USD edged lower in the Asian session but recovered in European trade. The pair has posted small losses in the North American session

  • 1285 is providing support
  • 1307 is the next resistance line
  • Current range: 1285 to 1307

Further levels in both directions:

  • Below: 1285, 1260 and 1236
  • Above: 1307, 1337, 1375 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged in the Tuesday session. Currently, long positions have a majority (70%), indicative of trader bias towards XAU/USD breaking out and moving to higher ground.

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.

Commodity currencies are beaming

 

Currency Markets 
The US dollar has given up some of its gains overnight as investors keenness for Greenbacks has temporarily abated. The shifting dynamics around trade and tariffs does give pause for thought as US dollar bulls are consolidating gains at a very tricky and treacherous junction for both the USD and US bond yields. After making some significant advances last week, USD profit taking was the name of the game in Monday NY session.

Commodity currencies are beaming on the back of surging Commodity Indexes as oil prices broke through last week high water mark. The de-escalation in the US -Sino tariff and trade has put to rest, temporarily albeit, some of the market biggest fears around a Global growth slowdown and commodity markets and prices are returning in vogue.

Also,  there’s the usual air of uncertainty with both May FOMC minutes and  April ECB minutes due this week. Trader’s will be more inclined not to get ahead of the curve before these releases.

EM currencies performed better overnight as stretched positions unwound and the bounce in oil prices provided some idiosyncratic benefits to petrol related currencies. However,  the common denominator in the EM space remains the stronger USD which could continue to run amok after the overnight profit taking inspired u-turn.

So far, the beginning of the week is  shaping up to be all about consolidating and gingerly contesting last week’s significant breakouts

Oil Markets

The markets positive take on “no trade war “and Venezuela political woes are driving Oil prices higher. The global condemnation surrounding the election of incumbent Venezuelan president Nicolas Maduro has as expected trigged the Trump administration to levee new sanctions on the debt-ridden country. Tightening the economic screws will severely cripple  Petróleos de Venezuela ability to export while making it virtually impossible for the country to acquire dollars.

Also, US secretary of state Mike Pompeo raised the Iran sanctions bar by promising to impose the “strongest sanctions in history” on Iran to bring it to the bargaining table for a new nuclear deal.

The effect of OPEC -Non-OPEC supply compliance and the US abandonment of the JCPOA has created ultra-tight supply conditions to the point where any hint of supply disruption will send oil prices soaring. Supply-side dynamics are apparently in the driver’s seat suggesting prices should push higher near term.

Equity Markets

Equity investors revelled as trade war fears have temporarily abated suggesting the parties are heading on a far more appealing approach than feared. But hope springs eternal that both superpowers can iron out a market-friendly bilateral trade agreement and at the minimum maintain, stay at the negotiation table until the more contentious trade issues can be ironed out. The fear is that the “no trade war “announcement is little more than kicking the can down the road., but only time will tell.

Gold Markets
Gold price movements continue to be as much as anything a USD trade. Gold prices moved off overnight lows on the back of USD profit taking. But from both a fundamental and technical picture the Gold bears continue to have the upper hand as bullish signals are non-existent. Given the resurgent dollar, a reprieve on the trade war front, equity markets stabilising and evaporated geopolitical risk premiums, the balance of risks suggests gold prices move lower over the near term.

Currencies

EUR: A bit of a mixed bag overnight with ECB’s Nowotny erring dovish but Italian Political risk premiums eased after Conte is said to be the next Prime Minister. However, given the Italian affair has little chance of a spill over into other peripheral debt and with the ECB already leaning very dovish with the first hike not priced until September 2019, the Italian risk should be of little influence on ECB policy.

JPY: After falling to move above 111.40 overnight, the dollar bulls turned more conservative without the support from higher US yields as 10 Year UST’s were little changed from last weeks levels

AUD: Strong Beta currencies are benefiting from the conciliatory actions on the US-China trade front as global equity markets soared and Wall Street has followed suit starting the week on a robust note. But the bullish case for commodities on the back of surging oil prices is building which is underpinning AUD sentiment.

MYR: We would typically expect USAsia to trade lower as the US dollar has taken a bit of a detour overnight. However, the Riggit remains vulnerable to the lack of insight into fiscal planning.  But markets levels look attractive from both a Bond yield and currency perspective not to mention surging oil prices, so we are left to surmise that once fiscal clarity is offered, we could finally see the Ringgit sentiment improve. I the meantime   EM Asia FX will remain susceptible to the stronger USD

Gold Dips as China-US Tariff Spat Eases

Gold has started the new trading week with losses. In Monday’s North American trade, the spot price for one ounce of gold is $1289.63, down 0.22% on the day. It’s a very quiet day on the release front, with no key indicators on the schedule. The sole event is a speech from FOMC member Raphael Bostic. On Tuesday, the US releases Richmond Manufacturing Index.

After weeks of an escalating trade war between the US and China, there was a breakthrough of sorts on Sunday. Treasury Secretary Steven Mnuchin announced that the two sides had made significant progress and the trade war was being ‘put on hold’. This has resulted in stronger risk appetite and has pushed gold prices lower in the Monday session. Just last week, the White House sounded pessimistic about a deal being reached with China. The two economic giants had exchanged stiff tit-for-tat tariffs in recent weeks, raised fears of a bilateral trade war between the two largest economies in the world. The respite in the rhetoric and tariffs means that the two sides can now tackle the US trade deficit with China, which President Trump has long complained is a result of a non-level playing field with China. The news that the sides had backed down has pushed the dollar and stock markets higher.

It’s a quiet start to the week, with no major US data releases until Friday. In the meantime, markets will be keeping a close eye on the Federal Reserve, which will release the minutes of its policy meeting earlier in May. The Fed did not raise rates at the meeting, but a strong US economy has raised expectations that the Fed will press the rate trigger in June – according to the CME Group, the odds of a June increase stand at 95%. The markets will be looking for some guidance from the May minutes, and is the minutes are hawkish, traders can expect the dollar to post gains against its rivals.

XAU/USD Fundamentals

Monday (May 21)

  • 11:30 US FOMC Member Rafael Bostic Speaks

Tuesday (May 22)

  • 10:00 US Richmond Manufacturing Index. Estimate 9

*All release times are DST

*Key events are in bold

XAU/USD for Monday, May 21, 2018

XAU/USD May 21 at 11:30 DST

Open: 1292.60 High: 1292.60 Low: 1282.09 Close: 1289.63

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1236 1260 1285 1307 1337 1375

XAU/USD edged lower in the Asian session. The pair lost more ground in European trade but recovered these losses. GBP/USD is steady in the North American session

  • 1285 was tested earlier in support and is a weak line
  • 1307 is the next resistance line
  • Current range: 1285 to 1307

Further levels in both directions:

  • Below: 1285, 1260 and 1236
  • Above: 1307, 1337, 1375 and 1416

OANDA’s Open Positions Ratio

In the Monday session, XAU/USD ratio is showing long positions with a strong majority (69%). This is indicative of trader bias towards XAU/USD reversing directions and moving to higher ground.

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 test of the breakouts

A test of the breakouts 

This week should be all about contesting and consolidating last week’s significant breakouts in 10 year UST, EURUSD, USDJPY and Oil Prices. And despite weekend inspired short-covering in US fixed income, we’ve seen a weekly close in US 10y above 3.05 %. And with the Baker Hughes rig count holding steady, the tumultuous trifecta of USYields, US Dollar and OIl prices, should get set to resume their upward trajectory.

While significant economic data fixtures will be far and few this week, markets will be inundated with central bank speakers, including four central bank governors (Fed Chair Powell, RBA Governor Lowe, Riksbank Governor Ingves, and BoE Governor Carney). Also, traders will navigate the May FOMC minutes, April ECB minutes and Riksbank Financial Stability Report.

The May FOMC minutes will be of particular interest after the markets shaded the May 2 FOMC meeting dovish. But with the market now slightly leaning to the four rate hike camp this year, any hawkish glean would raise that conviction and should propel the dollar to new yearly highs.

The latest statement on the China-US trade suggests both parties are happy to avoid the dreaded tit for tat escalation while working towards a more market-friendly bilateral trade agreement. But the intentional vagueness delivered by both parties statements suggests a great divide, but there’s a hint of a consensus, none the less, to bridge that gap. So given the possible worst-case scenario was avoided the market should view the latest trade discussions as a favourable and equity market should be in that happy place, at least for today

Oil prices

The US and China agreeing to no trade war will be positive for Oil prices given that the possibility of a full-out trade war would have dealt a significant blow to global growth.

The well documented dual supply disruptions from Iran and Venezuela continue to drive current sentiment. But with the pipeline constraints in the Permian Basin in focus and continuing to factor, the supply side dynamics suggest prices will remain firm through 2018. And throw in a positive demand fillip from a de-escalation of trade wars and prices could run higher for longer.

No change in US oil rig counts this week holding steady at 844 and about half of the heyday numbers of the Oct 2014 high, when oil was at $80. Suggesting no Monday morning downside test is in the offing

Gold Prices

Gold prices rebounded off weakly lows as the US dollar eased on the back of profit-taking ahead of the weekend. With geopolitical premiums getting exhausted, gold bulls are in search of the next significant catalyst. But, gold remains under pressure from the US dollar and utterly vulnerable to higher US bond yields which are showing signs of a strong topside breakout after the 10-year Treasury note yield hit 3.1 % overnight. The inflationary overtones from oil prices coupled with a strong US retail sales print have increased Fed rate hike expectations. This week FOMC minutes could be a key driver for near-term USD sentiment so we should expect Gold and the USD to remain relatively rangy head of the release

Currencies
The depth of USD appreciation in recent weeks has exceeded virtually everyone expectations. What started as a purge of long EURUSD positioning has manifest into a full USD bull. I think G-10 dealer will go AUD and JPY route to express stronger US dollar bias from a catch-up perspective. EURO could start to take cues from the USDJPY which could assert itself as the dominant driver near-term

JPY: With equities stabilised and 10y yields in the US breaking out of 3.05, USDJPY has arguably underperformed so we could see USDJPY lead the USD bulls to charge over the near term. Correlation with fixed income remains robust and UsdJpy touching 111.00 as US 10 year yields reached 3.125

MYR: Oil prices remain high but so too does political risk, particularly the discussion around GST and SST and how the Credit agencies will view the drop in budget finances
Also, the USD continues to firm against all Asian currencies, and this may be caused by US and China trade negations that will carry on tomorrow.

Outside of oil positivity, the negatives are building as   the USD could continue to grind higher near-term

The trend is your friend.

The trend is your friend.

Currency Markets

There was an intense focus on Italy Wednesday thanks to speculation that its new coalition government would request that the ECB write-off the bank’s QE-acquired debt of EUR250bn. Panic ensued with the EURUSD plunging to 1.1760 before recovering after the report was denied.

But the Italian political noise proved to be little more than a distraction from the markets complete focus on US 10-year yields as investors continue to challenge their conviction on both the USD and the trajectory of US bond yields. But, what’s new with this picture as the market has been second-guessing the emerging bullish dollar narrative since Mid-April and missing out on 550 pips EURUSD  downside move

If the market continues to trade off US yields and diverging economic data between the US and EU, it’s hard to argue against the current direction in yields or the dollar. Forget the VIX the DXY is the new fear index if we consider the number of market cracks the dollar has exposed on its recent move.

On the US economic data front, the consumer remains the economy’s backbone, and if this robust trend in the retail space continues to build, factor in a bit of wage growth pressure and the US dollar will continue to move higher on the back of higher yields.

However, the Pound has firmed considerably on Brexit news breaking news from The Telegraph explains. “Britain will tell Brussels it is prepared to stay in the customs union beyond 2021 as ministers remain deadlocked over a future deal with the EU, the Telegraph has learned.” which has towed the EURUSD gingerly higher in early APAC trade

EUR:  With the EURUSD back above 1.1800, we’re at a make or break point for judging near term trader sentiment. Over the next 48 hours will be telling, as the bulls and bears jostled for position but provided the EURUSD can finish the week below 1.1850, that would suggest the bullish USD story remains intact. But a close below 1.1775 would be even more convincing

JPY: Similarly, a weekly market close above 110 indicates the near term USD rally continues. The correlation between rates feels right, and the USDJPY could be the best bet to express the USD dollar bullish bias near-term

AUD: It remains to confuse by not trading in line with US fixed income. And even more frustrating for the Aussie bears is the copper continues to sell poorly. After yesterday miss on the wage price index, a lot of buying emerged. Far much more than usual, suggesting some real cash interest on the dip possible from resting orders. ( Exporters??)
Oil Markets
Oil prices resumed their climb Wednesday after shrugging off Tuesday’s API data as investors turned focuses on the key Energy Information Administration report which highlighted an unexpected draw of 1.4 million barrels for the week to May 11. Of course, more attention will fall on EIA given that the API is a voluntary metric and, at times entirely off the wall, whereas EIA reporting is a mandatory industry regulation and the preferred metric for short-term investors. None the less, divergence in the reports will leave some investors scratching their heads as this week’s API data provided traders with more questions than answers.

With the dual supply shortcomings from Iran and Venezuela providing substantial support and given we’re not even in peak July driving season, at least for the short term, it’s hard to imagine Oil prices giving up too much ground especially on bearish inference from one of highly unpredictable US Oil inventory reports. Dips continue to look attractive in this environment.

Gold Markets
Gold remains under pressure from the US dollar and utterly vulnerable to higher US bond yields which are showing signs of a significant topside breakout after the 10-year Treasury note yield hit 3.1 % overnight. The inflationary overtones from oil prices coupled with a substantial US retail sales print have increased Fed rate hike expectations. As the trickle-down effects from US fiscal stimulus continue to show in the data, bond yields will move higher, but ultimately the positive data prints will leave a larger than life footprint on Fed members interest rate views and challenge the current dot plot scenario.
Malaysia Markets

Not unexpected the political noise, stronger USD and higher US Treasury yields continue to dent sentiment in local markets.  But given the higher US Bond Yields, I expect the USDMYR to grind higher over the short term in line with the broader USDASia basket.

 

Stephen Innes OANDA Head of Trading APAC

Gold Steadies After Slipping Below $1300

Gold is trading sideways in the Wednesday session, after sharp losses on Tuesday. In North American trade, the spot price for one ounce of gold is $1290.61, down 0.03% on the day. On the release front, construction numbers were mixed. Building Permits remained steady at 1.35 million, matching the forecast. Housing Starts dropped to 1.29 million, short of the estimate of 1.32 million. On Thursday, the U.S releases Philly Fed Manufacturing Index and unemployment claims.

In the U.S, retail sales and core retail sales posted gains in April, although both indicators fell short of the estimates. Still, consumer spending is improving after a sluggish first quarter. Investors liked what they saw, and the US dollar was broadly higher on Tuesday. At the same time, a new concern is higher gas prices, which could put a dent in consumers’ wallets and hurt spending. Oil prices have hit their highest levels in over 3 years, and with the US leaving the Iran nuclear deal and escalating tensions in the Middle East, gasoline prices could remain at high levels.

The U.S economy continues to perform well, but the Federal Reserve target of 2 percent remains elusive. CPI rebounded with a gain of 0.2%, but this fell short of the estimate of 0.3%. Core CPI edged lower to 0.1%, shy of the forecast of 0.2%. Inflation levels will be an important factor for the Fed in its monetary policy projection, which remains at two more hikes in 2018. The odds of a rate hike at the June hike stands close to 100%, and the US dollar could continue to make broad gains as we get closer to the June policy meeting.

XAU/USD Fundamentals

Wednesday (May 16)

  • 8:30 US Building Permits. Estimate 1.35M. Actual 1.35M
  • 8:30 US FOMC Member Raphael Bostic Speaks
  • 8:30 US Housing Starts. Estimate 1.32M. Actual 1.29M
  • 9:15 US Capacity Utilization Rate. Estimate 78.4%. Actual 78.0%
  • 9:15 US Industrial Production. Estimate 0.6%. Actual 0.7%
  • 10:00 US Mortgage Delinquencies. Actual 4.63%
  • 10:30 US Crude Oil Inventories. Estimate -1.1M. Actual -1.4M

Thursday (May 17)

  • 8:30 US Philly Fed Manufacturing Index. Estimate 21.1
  • 8:30 US Unemployment Claims. Estimate 219K

*All release times are DST

*Key events are in bold

XAU/USD for Wednesday, May 16, 2018

XAU/USD May 16 at 12:25 DST

Open: 1290.98 High: 1297.02 Low: 1286.44 Close: 1290.64

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1236 1260 1285 1307 1337 1375
  •  XAU/USD edged higher in the Asian session. The pair reversed directions and lost ground in European trade. XAU/USD has recovered and posted gains in the North American sessions
  • 1285 is providing support
  • 1307 is the next resistance line
  • Current range: 1285 to 1307

Further levels in both directions:

  • Below: 1285, 1260 and 1236
  • Above: 1307, 1337, 1375 and 1416

OANDA’s Open Positions Ratio

In the Wednesday session, XAU/USD ratio is showing long positions with a strong majority (73%). This is indicative of trader bias towards GBP/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.

I’m a believer

I’m a believer

The promising US Retail sales data left a resound footprint on global markets as US consumers are loosening their purse strings, but perhaps more important from an investor perspective, the data speaks directly and plainly while providing a linear gauge of the trickle-down effects from fiscal stimulus. Indeed, green shoots start to emerge.

The UST 10Y closed above the critical and pivotal 3.05 % area which encouraged the dollar Bulls to hammer the EURUSD down to critical structural support levels. While the clearest dollar bull signal is from US 10y yields, but with trader humming the iconically cool ” I’m a Believer” this morning, there’s permanence building as waves of fresh dollar longs hit the books.

Oil Markets
Despite OPEC oil demand forecasts amidst China’s unquenching thirst for crude oil rising, bullish Asia sentiment seems to have gone off the boil after China reported weaker-than-expected investment and retail sales in April, muddying its economic outlook suggesting the domestic surge in refinery runs could be short-lived.

The stronger dollar typically causes a bit of indecision as investors usually back off from commodity risk when the US dollar strengthens.

The API reported a surprise inventory build for the week ending May 11 which caused some intraday long positions to cut risk.

But at the end of the day, Oil markets remain supported by the usual suspects, Iran and Venezuela and OPEC compliance suggesting Oil remains a buy on the dip.

Gold Markets

Gold finally succumbed to the $1300 level as the stronger USD dollar ran roughshod through COMEX gold overnight. But with Gold positioning on CFTC significantly reduced against much of the year, mirroring the money flows into the USD over the past month, there wasn’t a lot of market stress on the move from a flow perspective.

Shifting interest rate dynamics on the back of oil-driven inflation expectations with the stronger USD in tow suggests we could see an extension lower. But ultimately the longer term inflationary pressures, especially with real interest rates expected to stay historically low, gold should continue to find support. However.,logic suggests letting et the dust settle, as bullish signals have remained far and few between of late.
G-10 Currencies

EUR: The US retail sales number triggered a massive currency reaction on the back of UST 10 Y yields rocketing higher. While the market is tentatively finding support at the critical 1.1820-25 level, it’s hard to argue the current direction given the surging US yields which suggest we could print in the 1.17 handle sooner than later.

JPY: USDJPY soared as the US Treasury yield rally spotlight on the interest rate policy divergence between the Bank of Japan and the Fed. USDJPY rose from 109.91 at the NY open to 110.44. However, Yonhap reported North Korea is cancelling its meeting with South Korea for Wednesday and threatening to withdraw from its summit with Trump – all because of US-South Korea drills. Which has seemingly capped, at least for the time being, USDJPY upward momentum

Malaysia

The local markets are going through a period of inflexion. After navigating a potentially high-risk election, as investors are taking a well-deserved breather after coming out relatively unscathed.

But with the US dollar trading stronger across the EM Asia Basket and in G-10 space the Ringgit will struggle to make any inroads today Especially with the US 10 years UST surging to 3.08 overnight.

Investors are unlikely to flock back into the Ringgit end masse over the next week especially with the USD surging and US yields punching higher and oil prices off their latest high-water mark.

We should expect a bit of a bumpy ride over the next few weeks as soon as the government lays all their policy cards on the table. Yesterday Malaysia’s new Council of Eminent Persons briefed the public on its activities, but the main take away is that fiscal reforms will shade more towards cost cuts to offset GST removal at this stage and should be good enough to keep the prey Credit agencies eyes at bay for the time being.

Stephen Innes OANDA Head of Trading AOAC

Yields in focus , again

Equity Markets

Equity markets clung on, at least for today, to the easing of trade tensions on the back of President Trumps ZTE reprieve from potentially crushing sanctions. But with US yields again moving higher and the key 10 Year UST nudging above 3 %, it indeed took the wind out of equity investor sails. None the less, the major US indices managed to eke out a positive close despite giving up earlier gains.

Look no further than then the far-reaching inflationary implication of higher oil prices underpinning US yields. Higher oil prices will continue to create the bumpy ride on equity markets, And while supportive of the enormous Oil conglomerate constituents, the cause and effect of higher US interest will most certainly weigh on valuations over a broader market.

While comments from US ambassador to China are on various newswires and he says, “ The United States and China are still “very far apart” on resolving trade frictions. He adds,”China agreed to do a lot of opening up when they joined the WTO, but a lot of the promises were not fulfilled. We want a timetable. We want to see these things happen sooner or later,” he said. Suggeting the divide remains wide

Currency Markets

US fixed income continues to trade offered. German Bunds had bettered those moves after the tepid CPI print which held the dollar bulls back from re-boarding the USD bandwagon. Last week’s weaker US inflation print caused investors to increase their curve flattening positions, where they favour longer-dated Treasuries over shorter-dated issues But with US 10y revisiting the 3 % level, the USD dollar is opening the Asia session with a bounce in its step. But, Traders are decidedly mixed in G-10 flipping positions on a dime as the market continues to trade hypersensitive to US yields. And of course, since no one seems to have a reasonable handle on the trajectory of US interest rates, therefore currency markets remain muddled.
Oil Markets
Oil markets turned bid again on geopolitics. Yemen’s backed Houthis launched missiles at a Saudi Aramco facility, but perhaps the most significant flashpoint is violence that broke out on the Gaza Strip in response to the US’s inauguration of its Jerusalem embassy.

Which has triggered much discussion about the WTI-Brent spread (CLCO1 Index), which has plumbed into deeper negative territory

The gain for U.S. benchmark oil prices wasn’t quite as impressive with traders wary of OPEC’s ability to offset crude supply declines and growing U.S. production. However, the wideners could be part and parcel with Oil traders going through the ritualistic Monday tendency of testing the markets downside resolve by overplaying the jump in Friday rig counts.

But adding the overall bullish narrative are signs that global oil market continues to tighten as the monthly OPEC report suggests a very balanced supply and demand dynamic with stockpiles running a small 9 million barrels above the five-year average.

But in general, the market is wholly focused on the hornet’s nest in the Middle that is an accident waiting to happen.

Gold Prices

Gold prices remain tethered to the hip of the USD which continues to be the most dominating factor driving sentiment. Also, investors are erring on the cautious side ahead of tomorrow Retail Sales, as history has a way of reminding us never to understatement the purchasing power of the US consumer. A better than expected print would give the Federal Reserve more cause to raise interest rates would naturally push the dollar higher. But with US yields testing the 3 % level in 10 Yeas UST, rates are also weighing on Gold sentiment, this despite slightly wobbly equity markets and the abundance of geopolitical headline risk.

Malaysia

The political risk premium has tentatively evaporated after the markets opened and traded reasonably well yesterday on affirmative council appointments made at the weekend, the central bank backstop after BNM reaffirmed it would continue to ensure clean conditions prevail in onshore financial markets, and of course the tight MYR-BCO (WTI) correlation.

But investors are indeed not crashing the gates to increase economic MYR risk; instead, it was the placid open which caused bearish MYR bets along with pre-election hedges to unwind. But the positive Ringgit sentiment came on the back of the local supply where Malaysian dealers were comfortable selling dollars using the BNM as a stop-loss order. Even more telling were the local Pension funds which were on the bid (bond and equity markets) all day providing strong support levels.

At 3.95 the market continues to bake in ~.05 political premium on the back of the GST uncertainty and how the debt agencies perceived scrapping the unpopular tax. But in addition to the to the political risk, ultimately what does matter is the future direction of both the USD and US bond yields. Given the anticipated bumpy ride over the next few weeks, for some, there was not enough of a fire sale to comfortably re-engage the Ringgit, and it remains highly unlikely investors will chase the MYR higher until the all the government’s cards are on the table. Expect some consolidation today.

Currencies Views

EUR: The long and short of it. Interest rate differential continues to drive the bus. While the lower EUR does suggest the ECB would be more willing to raise interest rates sooner than later, members are very guarded with their language not wanting to ignite an EUR rally and traders starts tripping over themselves to get EURUSD topside exposure on a definitive policy shift.

JPY: Providing JPY colour for the past few weeks has been a copy and paste, so why change today. “While US fixed income remains, the primary driver suggesting USDJPY moves to 110 but without a spark on the US inflation front Please make me a believer!!