Subdued Fund Buying Despite Strong Commodity Gains

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 1. A week that saw S&P 500 trade mostly sideways near its record high while the technology sector lost steam. Treasury yields rose ahead of jobs data with the market pondering for how long the Fed can continue adding support amid rising inflation. The dollar held steady while the commodity sector recovered strongly from the May correction.


The commodity sector saw buyers return following the May correction with the Bloomberg Commodity index rising 3%. All sectors apart from precious metals and livestock recorded strong gains led by crude oil, copper, corn and coffee. In response to these developments hedge funds and large money managers increased bullish bets across 24 major commodity futures by 3% to 2,358k lots.

Given the strength of the recovery a relatively small increase that was led by crude oil (25k), gas oil (17k), natural gas (+11.7k), corn (21.9k) and sugar (12.5). Other contracts such as copper (-6.3k) and both wheat contracts (-5.7k) were sold despite recording strong price gains. Potentially a sign that investors despite being dictated by the price action to be long are feeling somewhat uncomfortable with prices at multi-year highs and breakeven yields (inflation) that has been drifting lower during the past three weeks.


Most of last week’s commodity buying was concentrated in the energy sector, most noticeable crude oil and gas oil. OPEC’s bullish demand outlook for the second half combined with the OPEC+ groups ability to control the price, helped drive Brent above $70 while WTI reached levels last seen in 2018. In response to these developments hedge funds increased their combined crude oil net long by 25.2k lots to 649.5k, a three week high but still some 88k below the recent peak in February.

While the overall increase in both WTI and Brent was primarily driven by fresh buying, the bulk of the buying occurred in WTI. This in response to tightening US market amid increased demand for fuel and low stocks at a time where production is expected to show a much slower growth trajectory than the one we witnessed during previous cycles of rising prices.


Despite recovering strongly from the late May correction, only small changes were seen in soybeans and wheat. Corn received most of the attention with the 11% price spike driving a 21.8k lots increase, mostly due to short covering with potential buyers showing a degree of hesitancy as we move into the US growing season. In soft commodities, buying benefitted sugar, cocoa and coffee, and just like corn the net buying in coffee was primarily due to the short covering with buyers hesitating chasing the 7% rally seen during the week.


Gold buying ran out of steam with long accumulation slowing to just 2.9k lots, a far cry from the 61.3k lots that was net bought the previous three weeks. Having surged higher by 240 dollar since early April on a combination of technical buying and short-covering from large trend following funds, the lack of fresh buying last week could indicate that this initial demand has now been met. Also worth noting the reporting week up until last Tuesday did not take into account the US economic data related price swings that hit the market towards the end of last week. At 129k lots, the gold long remains well below the most recent 284k lots peak from March last year.

Elsewhere in the metal space, silver longs were reduced for a second week while copper selling extended to a fourth week. During this time the net long has slumped by 58% to just 27.6k, the lowest bet on rising copper prices since last June when the rally had only just started to gather momentum.

Latest: Gold trades softer in early trading following an end of week rollercoaster ride where prices first slumped on emerging profit-taking, only to bounce back on Friday following what looked like “Goldilocks” US payroll date. Gold’s so far shallow correction following the strong rally since early April potentially highlighting the risk that all is not done yet on that front. The first key downside support level that will determine the underlying strength of the market is the 200-day moving average at $1842. Focus on the dollar and whether yields can maintain their Friday drop, President Biden’s spending plan and the market reaction to the G7 tax proposal.


In forex, the flows in the week to June 1 were mixed while the overall sentiment was still skewed towards additional dollar selling. The net short against ten IMM futures and the Dollar Index reached a 12-week high at $17.7 billion after speculators net sold $900 million. Despite trading softer on the week, speculators continued to buy euros (5.3k lots) with buying also seen in JPY (3k), CAD (3.9k) and CHF (1.5k), while selling reduced the sterling long by 6.5k lots.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

China Raises Reserve Requirement for FX, Stemming the Yuan’s Rise

Japan, Australia, and Singapore, for notable exceptions. Europe’s Dow Jones Stoxx 600 took a seven-day advance into today’s action and is struggling to extend it. US futures have edged slightly higher. European bond yields have edged higher. The dollar is little changed against the major currencies. Outside of the Australian dollar, which is about 0.3% higher, around $0.7735, the other major currencies are +/- 0.15%. Emerging market currencies are mostly firmer, led by the Turkish lira, which was helped by a stronger than expected Q1 GDP (1.7% quarter-over-year and 7% year-over-year).

The JP Morgan Emerging Market Currency Index is extending its advance for the fourth consecutive session. Gold is holding above $1900, while oil is firm, and July WTI is extending last week’s 4.3% rally as it tries to solidify a foothold above $67 ahead of tomorrow’s OPEC+ meeting. Industrial commodities, such as copper, iron ore, and steel rebar have moved higher to build on the recovery seen at the end of last week.

Asia Pacific

China’s composite May CPI crept up to 54.2 from 53.8. It was the result of a slightly disappointing manufacturing reading that slipped from April’s 51.1 to 51.0. The non-manufacturing PMI, however, was stronger than expected, rising from 54.9 to 55.2. The recovery appears to be morphing into a steady pace expansion. Caixin PMI is next (manufacturing PMI tomorrow) with May trade figures and reserves possibly before the end of the week.

Japan has extended the formal emergency to June 20, with Opening Ceremonies for the Olympics scheduled for July 23. The emergency threatens to delay the economic recovery. April industrial output, retail sales, and housing starts were reported earlier today. Industrial production is aided by exports and rose 2.5%. While better than March’s 1.7%, it still fell shy of projections for a nearly 4% gain. Retail sales, however, sorely missed forecasts and illustrates, at least in part, the impact of the social restrictions on consumption.

The 4.5% month-over-month fall was more than twice the decline expected and was the biggest slump since last April. The broader measure of household spending is due out later this week. Housing starts were a bright spot. The 7.1% year-over-year advance bested expectations and was the first back-to-back gain in two years. Next up, the final manufacturing PMI reading. The preliminary report showed a slower pace of expansion (52.5 from 53.6).

The Reserve Bank of Australia meets first thing tomorrow. No change is expected, but the statement will be scrutinized for clues for what officials will decide next month when it reviews its asset purchases and three-year interest rate target. Shortly after the central bank meeting, Q1 21 GDP will be reported. A 1.1% quarterly advance is expected after a 3.1% expansion in Q4 20.

A series of comments by Chinese officials appeared to talk the yuan lower, emphasizing that the recent gains were unlikely to last due to speculation, potential Fed tightening, and or rate adjustments in the emerging markets. It was having a little impact until the PBOC announced a two percentage point increase in reserve requirements for foreign exchange positions. The new requirement starts June 15, and the reserve requirement will stand at 7%.

The PBOC’s reference rate for the dollar, set at CNY6.3682 (compared with expectations for CNY6.3656, the median in Bloomberg’s survey, also seemed to be a protest. The offshore yuan recovered on the announcement. The US dollar was rebuffed ahead of the weekend after a brief foray above JPY110 for the first time since early April. The greenback was sold in the European morning to around JPY109.65. Support is seen in the JPY109.40-JPY109.60 area. The Australian dollar is firm in the upper end of the pre-weekend range when it approached $0.7750. Recall that it had tested the month’s low (~$0.7675) and rebounded back above $0.7700, where it has remained today. The $0.7800 is the real nemesis for the Aussie bulls.


The eurozone’s May inflation is front and center. French data before the weekend showed a 0.4% rise for a 1.8% year-over-year gain. It was up from 1.6% in April. Italy reported a flat month-over-month rate today, which lifts the year-over-year rate to 1.3%, both slightly softer than expected. Spain’s 0.5% increase matched expectations and lift the year-over-year rate to 2.4% from 2.0%. German states have reported, and the domestic measures were mostly 2.5-2.6% higher year-over-year.

This warns of the possible upside risk to the national harmonized measure that rose 0.5% for a 2.1% year-over-year advance in April. The aggregate figure is out tomorrow. The risk is that the headline rises a little more than the 0.2% gain expected, which could see the year-over-year rate test 2%.

The fifth round of Europe-led talks to revised the 2015 pact that limits Iran’s nuclear developments began yesterday. This round of talks could be the last given the proximity of the June 18 Iranian elections. Separately, the possibility that a deal is struck and some Iranian oil can return to the market is part of the constellation of considerations for OPEC+ when it meets tomorrow to sort out its plans to boost output.

It is generally expected to maintain current output quotas, with a rise expected (~840k barrels a day) in July. Meanwhile, it appears that after four inconclusive elections in four years, Israel may be on the verge of a new government that will not include Netanyahu after one of the Prime Minister’s key allies defected to the coalition being forged by former Finance Minister Lapid. Of note, that coalition may rely on an Arab party to secure a majority. The Israeli central bank meets today and is widely expected to maintain the 10 bp base rate.

The euro fell to a two-week low below $1.2135 before the weekend and rebounded to poke above $1.22 before the end of the session. According to Bloomberg data, the euro has settled between $1.2192 and $1.2195 for the past three sessions. It is confined to around a fifth of a cent range today, hovering around 10 ticks on either side of those settlements. The pre-weekend high was $1.2205, and the euro has been stopped just in front of it so far today.

If it holds, it would be the fourth consecutive session of lower highs. Sterling also appears to be going nowhere quickly. It closed above $1.42 last Thursday for the first time in years, but there has been no follow-through buying. It met sellers today as it tried to push back above $1.4200. Initial support is seen around $1.4150, but better support is closer to $1.41.


The disappointing US April employment report underscores the importance of this week’s May estimate. Moreover, a strong upward revision to the April series would seem to be consistent with other data inputs. Auto sales on Wednesday may also be important. After the surge in April (18.5 mln vehicles as a seasonally-adjusted rate), the chip shortage may take a toll. The median forecast in Bloomberg’s survey is for a 17.5 mln pace.

Note that the chip shortage is seeing new car buyers opt for 2020 models and dealers buying cars with expiring leases as less than expected miles were driven last year, boosting the resale value. Fed president and governors have numerous speaking opportunities this week, and the general message has confirmed what the market already thought it knew, namely that a formal discussion on tapering is possible in the coming months.

As we have noted, many are talking about the Jackson Hole Fed conference at the end of August and/or the September FOMC meeting as likely venues. Despite the talk, the 10-year yield settled just below 1.60% before the weekend. Chair Powell speaks on Friday at a Bank of International Settlements function.

Canada reports Q1 GDP figures tomorrow (expected 6.8% at an annualized pace after 9.6% in Q4 20), but the jobs data at the end of the week is more important. Like the US, Canada’s April report disappointed. It lost 129.4k full-time positions and 207k jobs overall. However, while the US job creation is expected to have accelerated, the median forecast in Bloomberg’s survey anticipates another loss of jobs (~25k).

Mexico’s data highlights include worker remittances (which continue to exceed the trade surplus) and the PMI. However, the central bank’s inflation report on Wednesday is expected to solidify the cautious stance in light of the recent rise in price pressures. The market appears to be pricing in as much as 75 bp of tightening over the next year. In addition to April industrial production and May trade figures and PMI, Brazil reported Q1 GDP. It is expected to have grown by 0.8% after a 3.2% expansion in Q4 20. The year-over-year rate is expected to turn positive. Before the weekend, Fitch affirmed Brazil’s BB- rating and retained the negative outlook due to the risks that fiscal consolidation is not delivered.

The US dollar remains in its trough against the Canadian dollar. The CAD1.20 offers critical technical support, while the upside is blocked by the 20-day moving average (~CAD1.2115). The greenback briefly rose above the moving average last Thursday for the first time in a month, and those gains were quickly sold into, and the sideways churn continues.

The greenback was bid to two-week highs against the Mexican peso (~MXN20.0770) ahead of the weekend but also retreated to settle a little below MXN19.94. The MXN19.90 area offers initial support. The market may be reluctant to take the greenback above MXN20.00 in today’s thin activity. The dollar is testing support near BRL5.20. It has not traded below there since January. A break would target BRL5.0. The central bank meets on June 16 and already appears to have committed to the third 75 bp hike this year.

This article was written by Marc Chandler, MarctoMarket.

For a look at all of today’s economic events, check out our economic calendar.

Could the DXY be Set to Move Higher as Election Night Approaches?

In less than a month, perhaps one of the most hotly contested and acrimonious presidential elections in recent memory is due to be held during a global pandemic and against a backdrop of civil unrest. On November 3, President Donald Trump will seek to maintain his grip on the reins of power for another four years as Democratic nominee Joe Biden hopes to unseat him.

A look back to 2016

What will this mean for the markets? It’s still anyone’s guess, but looking back to 2016’s election can perhaps provide us with an insight as to what may be in store. Some of you may remember that the recent bout of dollar strength we saw earlier this year at the height of the coronavirus crisis has only been eclipsed once this past decade. In mid-March, the DXY breached the 100 level to top out at around 103 by the end of the month. The last time the dollar rallied as hard was in the wake of the 2016 election following President Trump’s victory, where it topped out just shy of 104. To get anywhere near to those levels prior to that, you have to go all the way back to the end of 2002.

Weekly Chart of DXY going back to 2016. Source: Trading View.

Those of you following US equities back in 2016, will also recall what, at the time, seemed like a worrying sell-off, which hindsight has revealed to be a mere blip as markets shook off the shock of a Trump victory and promptly rallied to new highs. So, we had the risk-off combination of a dollar rally and equity sell-off until markets came to terms with the fact that the sky was not indeed falling, and that the new commander-in-chief may just be good for business. But will this time be as cut and dried?

A much more volatile 2020

As you can appreciate, what we have now is a much more volatile situation. What we’ve seen in the US since March is a V-shaped recovery in equities combined with a downturn in dollar strength. The US dollar index hit lows of 91.70 at the beginning of September and has been coiled up in a range between 91 and 94 since July. The S&P 500 is currently trading around 58% higher than it was at the lows in March (also up some 70% since the November 2016 sell-off during the last presidential election).

Meanwhile, the situation on the ground for your average American couldn’t be starker. US unemployment throughout 2016 hovered at around 4.5 million, while it currently finds itself at 7.9 million, having fallen from a staggering 14.7 million back in April. Despite resounding calls for more fiscal stimulus, the package of unemployment benefits known as the Cares Act was brought to a xclose at the end of July and now appears to be off the agenda until after the election.

US unemployment data 2016-2020.

The United States and its population finds itself in a much more precarious situation in 2020 than it did in 2016. Aside from the economic consequences of COVID-19 and a cyclical downturn that seemed to be on the cards from back in 2018, recent events have revealed it to be more polarized along ideological, racial and generational lines. Even something as seemingly objective as the science behind pandemics and how to stem their spread has become a highly politicised issue.

Markets haven’t priced in a chaotic election

But it’s the election itself that has market participants most concerned, with some fearing that a contested election result could result in nationwide disruption and market chaos. The distinctly uncollegiate first debate between Biden and Trump, in which neither candidate seemed willing to advise their more militant followers to stand down should a conclusive victor not emerge on the night, seemed to provide a confirmation of these concerns.

There has been a great rise in the casting of postal ballots due to changes in the law since 2016 to allow for, or expand, early voting by mail in certain states. These changes, coupled with the pandemic, mean that a certain contingent of voters (which skew slightly Democrat) have been casting their votes a month before the election. The manner in which postal ballots are processed makes it increasingly likely that a clear victor will not be announced on the night or even the morning after November 3.

This is particularly so if the numbers are close. In the event of anything other than a landslide for either candidate, we could see a situation in which Trump or Biden could refuse to concede defeat. Indeed, it has been reported that former presidential candidate, Hillary Clinton, has advised Biden to do just this and not concede on the night until all of the postal ballots are counted.

With US stock markets at or around their all-time highs and the DXY trading at 2-year lows, it’s becoming clear that markets have yet to fully price in the possibility that this election may not run as smoothly or be resolved as conclusively as the previous one was; and that’s despite the fact that Trump’s 2016 victory was something of a wild card that markets failed to foresee. The moral of the story?

Expect volatility to rise as the election draws near, and be prepared for surprises. Incidentally, this is true even if you don’t trade the dollar or equities. Even assets, like cryptocurrencies, which are usually removed from the above concerns, are likely to be shaken should we experience a messy and chaotic presidential election. Also, be aware that, excluding 2008, the US dollar has risen between 2% and 12% every year following a presidential election since 1980.

by Giles Coghlan, Chief Currency Analyst, HYCM

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Dollar Begins Week on Back Foot

Europe’s Dow Jones Stoxx 600 is recovering from an early dip to four-day lows. US shares are trading higher after the S&P 500 closed below 3100 ahead of the weekend after reaching 3155. That may provide a cap, while it takes a move above 3181.50 to signal the bull move has resumed. The bond market is quiet, and peripheral European bonds continue to outperform the core. The US benchmark is virtually unchanged near 69 bp. The dollar is softer, with the Scandis and Antipodeans leading the move.

The dollar is though holding its own against the Japanese yen. Emerging market currencies are mixed. The Mexican peso and central European currencies are advancing, while Asian currencies, Turkey, and South Africa are heavy. Gold set a new high for the month (~$1758) and backed off before testing last month’s high (~$1765). August WTI continues to flirt with the $40-a-barrel level but has been unable to close above it.

Asia Pacific

China suspended some imports from Tyson Foods after a cluster of the virus was discovered. A Pepsi snack-making factory was closed Sunday because of the virus. The number of new cases in Beijing reportedly declined. Germany is also experiencing a flare-up of cases and infections rose Sunday for the third consecutive day. US infections rose by the most in three weeks on Saturday, concentrated in the Sun-Belt states and California. Brazil has over a million cases, and fatalities surpassed 50k. Mexico has reported its second-highest daily deaths.

Hong Kong unions and students failed to get the support that they required to strike against the security law. At the same time, the coronavirus restrictions prohibit large gatherings and prevent securing the necessary permits. A new spark may be needed, but the kindling remains dry. The first actions under the security law could serve the purpose.

Still, some suspect that the lack of widespread demonstrations will hint at a different strategy: emigration. Meanwhile, Hong Kong forwards, which is where the negative pressure is seen, normalized or nearly so, but appear poised to rise again. Separately, HKMA has had to fight a sustained campaign to prevent the US dollar from falling through its lower end of the currency band. The pressure comes from the mainland for HK IPOs and some flows drawn to the higher yields.

Intra-regional Asian trade remains challenged. South Korea reported exports in the first 20-days of June fell 12% year-over-year, which represents an improvement of over a nearly 20% fall in the first 20-days of May. However, the slowing chip exports (2.6% vs. 13.4%) was troubling and may have weighed on both the Kospi and the won. On Saturday, Taiwan disappointed with a May export orders rose 0.4% year-over-year, after a 2.3% gain in April.

The dollar has been confined to about a quarter of a yen below JPY107.00. It is going nowhere quickly. Last week’s range was roughly JPY106.65-JPY107.65. The Australian dollar finished last week on its lows, and initial follow-through selling saw it reach a five-day low near $0.6800 before rebounding. The pre-weekend high was set just north of $0.6910, and a push through here today, especially on a closing basis, would be constructive.

That said, the intraday technicals warn that it may be stretched. The PBOC set the dollar’s reference rate a touch firmer than the models suggested and kept its Loan Prime Rate unchanged. Note that the PBOC is one of the few large central banks not engaged in quantitative easing (long-term asset purchases), and the premium it pays over 10-year Treasuries is around 220 bp, the most since 2011.


Wirecard, the wunderkind of German finance, collapsed. The CEO resigned, unable to account for a quarter of the balance sheet (~1.9 bln euros). Ahead of the weekend, its bonds offered similar yields as Hertz, according to Bloomberg. This is the third corporate challenge to the German corporate governance and regulatory regime after the emissions scandal and the billions in fines and legal settlements levied against Deutsche Bank.

The new Bank of England Governor Bailey has indicated his first break from his predecessor Carney. Carney wanted to wait until rates had risen to 1.5% before allowing the balance sheet to shrink. Bailey argued that the balance sheet should be trimmed before rates increase. It still seems the eventuality is still some time off, as in more than a year.

Meanwhile, the Chancellor of the Exchequer Sunak is considering an emerging cut in the value-added tax to help spur the economy. Separately, the UK signaled it will relax trade controls that will apply to the EU (but not Northern Ireland) for the first half of next year and will boost spending by GBP50 mln to prepare the necessary customs intermediaries. It may need to hire 50k more custom agents. Sensitive products that involve products of plant or animal origins, and especially poultry and fish, may still face delays. Prime Minister Johnson suggests an agreement by the end of next month is possible.

Italy is also reportedly considering an emergency cut in the VAT for some strikes parts of the economy, including restaurants, tourism, clothing, and cars. It is preparing for a larger budget shortfall this year. Separately, the ECB’s record (minutes) from its recent meeting will be published later this week, and it may contain a section that discusses proportionality that the Bundesbank can pass on to Berlin to address the German Constitutional Court ruling. However, if it is too overt, it would seem to give credence to the idea that the German Constitutional Court can overrule the European Court of Justice.

The euro held its pre-weekend low by a hundredth of a penny ( a little below $1.1170), according to Bloomberg, and rose briefly through $1.1225in early European turnover. The intraday technicals are stretched, and optionality may help cap the upside. There are options for about 1.75 bln euros struck in the $1.1200-$1.1205 area that expire today and about 850 mln more euros at $1.1250. In addition, there are options for 1.8 bln euros at GBP0.9060 that expire today. The euro ran out of stream near GBP0.9070 earlier. The pre-weekend low was near GBP0.9000, and that maybe the near-term risk. Sterling itself is snapping a four-day downdraft against the dollar after first extending the losses to about $1.2335 before finding bids that lifted a cent off its lows before sellers reemerged.


The fact that the Fed’s balance sheet shrank last week for the first time since the end of February has little significance. The normalization of market functions has reduced the need for the swap lines by foreign central banks. Only a fraction of the maturing swaps is rolled forward. Still, the signal should not be lost. The Federal Reserve still has the monetary spigot wide open, and its balance sheet will increase. Treasuries, with purchases at $80 bln a month, will account more a smaller part of the new asset accumulation. Balance sheet growth is still the signal. Don’t be distracted by the noise. Meanwhile, the Treasury will be bringing to market $155 bln in coupons and around $170 bln in bills this week. Into the end of the month, quarter-end, some auctions may appear “sloppy.”

The US reports existing home sales for May. Recall last week, housing starts disappointed. Existing home sales are expected to have fallen for the third consecutive month. The anticipated pace of 4.09 mln (seasonally-adjusted annual rate) would be the lowest since 2011. Tomorrow sees the preliminary PMI, where the composite is expected to rise for the second consecutive month, and the median forecast in the Bloomberg survey is for the manufacturing PMI to reach the 50-level. Canada has a light economic calendar this week. The highlight for Mexico is the Banxico meeting on June 25 that is expected to result in a 50 bp rate cut (to 5.0%). Note that Argentina has extended the deadline for bondholders for the fifth time, now until late July, as it tries to reschedule its dollar debt.

The US dollar rose to a five-day high of CAD1.3630 earlier today but has come back offered. It was sold down to about CAD1.3560 in the European morning. The intraday technical indicators warn that the greenback may recover in the North American morning. The CAD1.3600 area is the middle of today’s range. The dollar traded in MXN22.1960 to almost MXN22.83 range on June 18 and remained in the range ahead of the weekend and thus far today. It needs to resurface above MXN23.00 to confirm a low is in place.

For a look at all of today’s economic events, check out our economic calendar.

This article was written by Marc Chandler, MarctoMarket.

The Euro is Knocked Back Further

European bourses opened higher but made little headway before some profit-taking set in, while US shares are trading higher. Benchmark 10-year yields are firmer, and the US Treasury yield is near 67 bp and is approaching the upper end of its recent range.

The yield has not closed above here since April 14. Despite the German court ruling yesterday, peripheral European bonds are not under pressure, and in fact, the Italian premium has narrowed a little. The dollar remains firm against most of the major currencies. The yen is resilient and Japanese markets re-open tomorrow.

The dollar bloc is little changed, but the euro and sterling are under heavy. The euro slipped below $1.08 in the European morning, and sterling was sold below $1.24.

Among emerging markets, the South Korean won is the strongest, though foreigners were net sellers of its equities today. The South African rand was resisting the dollar’s tug but has since turned weaker. On the other hand, South African bonds continued yesterday’s recovery.

Despite the recent downgrades and being dropped from the FTSE World Government Index, foreign investors have returned to South Africa’s bond market, and its bond sales yesterday were oversubscribed. Gold is hovering a little above $1700. June WTI, which traded near $10 a barrel early last week, briefly poked above $26 today before setting back to $24 and is now near the middle of the session’s range.

Asia Pacific

China’s mainland markets re-opened from the May Day holiday. When the local markets were shut on April 30, the dollar was at about CNY7.0635. The offshore yuan had weakened in the meantime. The US dollar rose from around CNH7.0815 on April 30 to close yesterday near CNH7.1225. The PBOC set the dollar’s reference rate against the yuan at CNY7.0690, which was a bit weaker than the CNY7.0720 that the models projected. The dollar fell to CNH7.10, as three-day low before recovering.

There is little evidence that Chinese officials are seeking to express their frustration with the escalation of US rhetoric over the virus or Taiwan through the exchange rate. On the other hand, the dramatic decline in energy prices is another hurdle to China fulfilling the trade agreement with the US, which seemed to have been a stretch under normal circumstances.

Australia appears to have reported an 8.5% surge in March retail sales, as households stockpiled. However, prices jumped in Q1, and when retail sales are adjusted for price changes, the Q1 performance is not impressive. In real terms, retail sales rose by 0.7% in Q1 after a 0.5% increase in Q4 19. The median forecast in the Bloomberg survey expected a 1.8% increase. Separately, New Zealand reported the jobless rate rose to 4.2% in Q1 from 4.0% in Q4 19. Employment rose 0.7% in the quarter while economists had expected a 0.2% decline. Private wage growth slows.

The dollar is trading heavily against the yen for the fourth consecutive session and has gained only once in 11 sessions. It slipped to almost JPY106.20 today, its weakest level since March 17. It is fraying the band of support that appeared to have been built in the JPY106.40-JPY106.60 area, which now becomes resistance. Some are linking the yen’s persistence to repatriation from US derivatives such as collateralized loan obligations.

However, our understanding was that most of these purchases were funded with dollar borrowings or swaps. The Australian dollar finished last week near $0.6420. It firmed slightly over the past two sessions but has stalled a cent below last week’s highs (~$0.6570). Watch the $0.6400 area, where the 20-day moving average is found. It has not closed below this moving average since April 3.


The flash PMI reports steal most of the thunder from the final estimates. The new information today is the German factory orders for March, which were weaker than expected, falling 15.6%, half again as much as the median forecast in the Bloomberg survey anticipated (-10%). The eurozone retail sales for March were also reported. They fell 11.2% on the month, more than the 10.6% decline expected.

The final PMI eurozone as a whole ticked up from the flash. The service component stands at 12 rather than 11.7, but still off from 26.4 in March. The composite edged up to 13.6 from 13.5, but it means virtually nothing given the 29.7 reading in March. German services and composite PMI were revised higher from the flash while France’s reports were revised slightly lower. Italy came in a little better than expected, and by that, we mean that the drop was a smidgeon smaller than expected, while Spain’s showed a larger decline than expected.

The euro was unable to recover much after falling from around $1.09 to about $1.0825 in response to the German Constitutional Court ruling yesterday, and it has been sold further today. A trap was laid by the court. It is not as simple as complying with a German court’s demand, as many observers seem to think.

If the ECB provides the justifications that its Public Sector Purchase Program is indeed a proportionate response, it concedes that the German court can overrule the European Court of Justice. This would set a dangerous precedent, most immediately for the likes of Hungary and Poland. They are already at odds with the ECJ over the independence of the judiciary, for example.

On the other hand, if the ECB were not to provide the justification, then it would leave the Bundesbank in an awkward position. Could it ignore the German Constitutional Court and continue to buy bonds under the PSPP program? The Germany court claimed that the ECJ had overstepped its authority (ultra vires).

The PSPP program accounts for less than a quarter of the ECB’s current purchases, success here will likely encourage challenges of the Pandemic Emergency Purchase Program, which is not bound by the capital key. Also, troubling was the German Court’s urging of the German government and parliament to challenge the ECB.

Even Bundesbank President Wiedmann, who wanted to ECB to adhere to the German Court’s demand for formal justification of its purchases, tried to defend the ECB’s independence. It begs the question, not of monetary or fiscal union, but the need for a legal union, and perhaps, a reaffirmation of the primacy of EU law over national law.

The euro has been sold below $1.08 in the European morning. It is at its lowest level since April 24 when it reached almost $1.0725. The low from late March was set near $1.0635, and the risk of a retest is growing. Resistance is now seen near $1.0850. Sterling also traded at its lowest level since April 24 when it briefly took out the $1.2360 area. It is slightly heavier than the euro. There is an option for about GBP325 mln at $1.2400 that expires today. Initial resistance is in the $1.2400-$1.2420 area.


Three US reports attract attention today. First is the ADP private-sector jobs estimate. Millions of jobs were lost in April, and the ADP will give some clue as to the magnitude ahead of the national figures on Friday. Something on the magnitude of 21 mln job loss is expected. Second, the US Treasury will announce the details of its quarterly refunding that is expected to boost the size and also re-introduce a 20-year bond. Third, the EIA oil inventory figures will be watched, following the API estimate of an 8.4 mln barrel build, the smallest since late March.

Oil prices are extending their recovery. The five-day rally coming into today is the longest in over a year. Most of the talk is about reductions in supply, and many expect that US inventory growth slowed for the third consecutive week. The EIA estimated that oil stocks rose almost 9 mln barrels in the week to April 24. Near $28.35, the June WTI contract would meet a (38.2%) retracement objective of this year’s decline. Reports suggest some shale producers they could start up again if crude were above $30.

Brazil’s currency and equity markets are among the worst performers so far this year. The currency is off 27%, and the stock market has fallen 30%. The central bank meets later today and is expected to cut the Selic rate again as the economy has deteriorated sharply. Inflation expectations had dropped since the last meeting when the officials had thought they provided enough stimulus. Although most economists expect a 50 bp rate cut, the market appears to in between a 50 and 75 bp cut.

Yesterday, Brazil reported March industrial output. The median forecast in the Bloomberg survey was a sharp 3.7% decline. Instead, it plummeted by 9.1%. The IBGE measure of CPI will be released later in the week. It is expected to fall to around 2.5% from 3.3% in March. Fitch cut its outlook for Brazil’s BB- rating to negative late yesterday. It cited the economic weakness, fiscal efforts, and tensions between President Bolsonaro and Congress. The virus contagion is spreading, and the economic situation is likely to get worse.

The US dollar is trading within yesterday’s range against the Canadian dollar after finding support in front of CAD1.40. Yesterday’s high was just shy of CAD1.4100. Firm equities warn of the risk that the greenback is sold through CAD1.40 today. A low near CAD1.3930 was seen at the end of last week. Meanwhile, the US dollar is also pushing near yesterday’s high against the Mexican peso near MXN24.17 in the European morning. The intraday technicals suggest it may hold, but if it doesn’t, the risk is for MXN24.40. Support is seen in the MXN23.60-MXN23.80 area.

Equities Rally and the Dollar Eases to Start the Week

All the industry groups are participating and financials and consumer discretionary leading the way.  The Dow Jones Stoxx 600 has been in a 320-340 range for the better part of three weeks and is approaching the upper end. The S&P 500 looks poised to gap higher at the opening.  The April high just below 2880 is coming into view.

Core benchmark yields are a little higher, but the peripheral European bonds are rallying with risk assets.  Yields in Italy, Spain, and Portugal are 5-10 bp lower, while Greece’s benchmark yield is off 12 bp.  The dollar is softer against all the major and most emerging market currencies.  The dollar bloc is the strongest, while the euro and Swiss franc are laggards. JP Morgan’s Emerging Market Currency Index is snapping a five-day slide. Gold is off almost 0.5% as it consolidates above $1700.  Crude oil is snapping a three-day advance, and the June WTI contract is near $14 a barrel.

Asia Pacific

The Bank of Japan made modest adjustments to its policy earlier today.  Three steps were taken. First, it removed the JPY80 trillion cap on government bond purchases. This is largely symbolic as the yield curve control policy has seen its bond purchases fall well shy of the cap (~JPY14 trillion over the past 12 months).

It did make a minor tweak to the different buckets (maturities) that it will buy.  Second, it doubled the amount of corporate bonds, and commercial paper it will purchase (to JPY20 trillion). This was as expected.  Third, it expanded access to its emergency loan facility to a wider range of banks.  Its forecasts were sobering.  Growth, it suggested, could contract by up to 5% (IMF -5.2%), and inflation could be -0.7% this fiscal year.

India’s central bank opened a new credit facility for mutual funds after Franklin Templeton shut six funds last week, citing a lack of liquidity.  The new facility is for INR500 bln (~$6.6 bln) as of today that can be lent to the mutual fund industry or buy investment-grade debt held by the funds.  Corporate borrowing costs soared after the funds were closed.

The dollar slipped toward the lower end of its two-week trading range against the yen (~JPY106.90-JPY108.10). There is an option for $1.2 bln struck at JPY107.00 that expires today.  There are also options for $1.1 bln placed in the JPY107.55-JPY107.60 range that also expire today.  The options may mark the range in the North American morning.

The Australian dollar was bid to new highs for the month today near $0.6470.  Note that $0.6450 corresponded to the (61.8%) retracement of this year’s decline.  The next immediate target is near $0.6500, though a close below $0.6445 would be seen as a failure.  The Chinese yuan was sidelined and little changed with the dollar near CNY7.08030.


S&P maintained its BBB rating of Italy and its negative outlook.  It noted the ECB’s backstop, and that in nominal terms, assuming no further deterioration in borrowing costs, Italy may pay less to service its sovereign debt the next few years than it did in 2019.

It seemed to suggest that it needed so see improvement in the debt trajectory over the medium-term (three years).  It suggested the same thing about the UK’s debt trajectory as the rating agency maintained its AA rating.  S&P cut the outlook of Greece’s BB- rating to negative.

The Swiss National Bank appears to have stepped up its intervention.  Sight deposits jumped by CHF13.4 bln (~$14 bln) in the week ending April 24.  They can be influenced by other activities but are believed to reflect ongoing attempts to limit additional strength against the euro.

The euro had been hovering just above CHF1.05 over the last couple of weeks, which is its lowest level in about five years.  Today, the euro traded near CHF1.0560, its highest in a couple of weeks.  A move above CHF1.06 is needed to signal anything important from a technical perspective.

The euro had fallen to its lowest level in a month (~$1.0725) at the end of last week before recovering to settle on the session highs, almost a cent higher.  Follow-through buying today lifted it to about $1.0860 in late Asian turnover.  It has consolidated in the European morning.   The $1.0800-$1.0820 area holds expiring options worth about 1.7 bln euros.

Last week’s high was near $1.09, and this needs to be convincingly taken out to lift the tone.  Sterling reached a five-day high today near $1.2455.  Last week’s top was just above $1.2500.  A gain above there is needed to undermine a potential head and shoulders topping pattern some see.  Initial support is seen near $1.2420.


The busy week in North America begins slowly.  The US and Canada have a light schedule today, with Mexico reporting March unemployment statistics.  The first look at US Q1 GDP and the FOMC meeting are the highlights.  Canada reports February monthly GDP later this week.  Mexico also reports Q1 GDP, which is expected to have fallen for the fifth consecutive quarter.

US oil inventory data will draw attention.  Despite cuts in output, and the shuttering of more oil rigs (-60 last week, leaving 378, a four-year low), US storage space is quickly becoming exhausted, and there is concern that the problem will persist through the expiration of the June WTI contract.

Over the weekend, Treasury Secretary Mnuuchin reiterated that the US was looking at how to help the oil sector.  It is not clear if it would be another facility that Fed supported or whether it would be the Treasury or Energy Department taking a leading role.  Last week, President Trump again threatened tariffs on oil imports.

Trump has also spoken about boosting the Strategic Petroleum Reserves and giving some private producers access to some of its storage capacity.  Several of the largest oil companies, including Exxon, Mobil, British Petroleum, and Royal Dutch report earnings this week. Many still insist the lower oil prices are a function of a dispute between Saudi Arabia and Russia. Yet, since 2008, the US has doubled its output, which reached 13 mln barrels per day by the end of last year.

The US is not the low-cost producer, though access to cheap capital helped.  The industry was set for consolidation even before the latest drop.  Failures and acquisitions are rationalizing the fragmented shale industry and the larger players finding opportunities.  Diamond Offshore Drilling became the latest casualty over, filing bankruptcy after missing a debt servicing payment a week and a half ago. Last year, its losses doubled to almost $360 mln as revenues fell by about $100 mln to $980 mln.

We suspect that most of the US assistance would not go to the small fledgling producers, many of whom are not investment grade.  If this is true, it may accelerate the re-shaping of the industry, while at the same time, putting down a marker that claims the US will not bear the burden of the global adjustment: Saudi Arabia and Russia need to accommodate it.

The Brazilian real slumped to record lows before the weekend following the resignation of the Justice Minister Moro, who was held in high regard as the driving force behind the anti-corruption Car Wash investigation that ultimately jailed former President Lula. It followed the dismissal of the head of the Federal Police.  President Bolsonaro has been widely criticized for the handling of the health crisis and last week dismissed the Health Minister that favored social isolation.  The Bovespa lost roughly 5.5% at the end of last week.

The US dollar traded between CAD1.40 and CAD1.42 last Thursday.  This range is still key for the near-term outlook. After finishing last week near CAD1.4100, the US dollar slipped to about CAD1.4040 before finding support.  We continue to see the Canadian dollar more sensitive to the risk appetite (S&P 500 proxy) than oil prices per se.

A convincing break of the CAD1.40 area would target the month’s low near CAD1.3860. The greenback closed firmly against the Mexican peso at the end of last week after poking above MXN25.00 for the first time since April 6, when the record high was set (~MXN25.7850). It is trading within the pre-weekend range and found support near MXN24.75, just above the five-day moving average.

This article was written by Marc Chandler, MarctoMarket.

Gold Prices are Poised to Test $1,800

Gold prices have broken out hitting multi-year highs versus the US dollar and have hit fresh all-time highs versus the Euro, which was first introduced in 1999. The demand for gold as the currency continues to rise in the face of the spread of the coronavirus. The increase in the yellow metal has come despite a decline in the euro and a rally in the US dollar. Historically, as the dollar increases in value, gold prices moderate. This is because the gold benchmarks are priced in US dollars, and as the dollar rises, gold prices generally moderate to incorporate the higher cost for purchasing gold using currencies other than the greenback.

With the dollar index (which is a basket of currencies versus the US dollar), hitting fresh 3-year highs, the correlation between the dollar and gold prices has broken down. So what is driving gold prices higher?

Gold prices are also negatively correlated to US yields. During 2019 and the beginning of 2020, the negative correlation between gold prices and the US 10-year yield has increased. The current 50-week correlation between gold prices and the US 10-year yield has hit -93%, which means that the values move in lockstep in different directions. The decline in the US 10-year yield reflects the market’s concerns with future growth based on several factors including the spread of the coronavirus.

Technical analysis

The US 10-year yield is poised to break down below an upward sloping trend line which could be a further catalyst for the advancement of gold prices. If the yield cannot break below this level the negative correlation between the 10-year yield and gold prices will start to unwind.

Gold prices are breaking out, despite the rally in the US dollar. Prices have hit a fresh 7-year high and have hit all-time highs versus the Euro.

Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line. The MACD histogram has moved above the zero-index level which is also a buy signal. The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

The relative strength index (RSI) is moving higher with a target level of 85, which was reached in both January 2020 and June of 2019. The continued acceleration of the RSI is important as prices are breaking out. What you don’t want to see is a continued rally in gold prices and a retracement of the RSI which would be considered a divergence. When prices are moving one way and momentum is decelerating, the continued movement of price action is suspect.

Bottom Line

The trend is gold prices are upward, and momentum has turned positive pointing to higher prices. A breakdown in the US 10-year yield will also generate a tailwind for gold prices. Additionally, if the US dollar stops rising quickly the current headwind created by the dollar could also buoy gold prices. The price target on gold is the 2012 highs at 1,796.

How long Can the Dollar’s Dominance Last?

Having dipped below 97.2 on January 31, the Dollar index is now trading above the 98.7 level. However, considering that DXY is now flirting with overbought territory in this current run, judging by its 14-day relative strength index, that indicates that it still the upward momentum may moderate in the immediate future.

Safe haven currencies in vogue amid coronavirus concerns

Persistent fears over the coronavirus outbreak have fueled the buying momentum for the Greenback, as investors find shelter in safe haven assets from the raging uncertainty. Since January 20, the US Dollar has strengthened against all G10 currencies, save for the Japanese Yen. Another bout of risk aversion over the near-term could be the catalyst that the DXY needs to hit that 99.0 line.

Powell’s testimony may dictate Dollar’s trajectory

Fed chair Jerome Powell’s semiannual monetary policy report before Congress today should help investors manage their expectations over the policy bias of the world’s most important central bank. With the Fed Funds futures pointing to a better-than-even chance of a US interest rate cut only in the second half of the year, such expectations should serve as a base for the US Dollar to explore more of its upside through the course of this month.

Considering the resilience of US consumers, who are being relied on to keep US economic growth momentum intact, the world’s largest economy appears to have solid enough foundations to mitigate its downside risks. Still, the US central bank may be called into action sooner-than-expected if downward risks stemming from the coronavirus outbreak feature more prominently on the US economic outlook. Any suggestion that a Fed rate cut is imminent could see the DXY unwind recent gains.

US economic fundamentals supportive of more Dollar gains

Looking further down the line, the recent release of US President Donald Trump’s $4.8 trillion election year budget could fuel expectations for more Dollar gains as investors expect potentially more fiscal stimulus in the pipeline, provided Donald Trump wins the November elections, of course.

Buoyed by the still-resilient US economic data, judging by this past Friday’s January US non-farm payrolls data, further signs of potential outperformance by the US economy compared to its developed peers, such as the European Union and the United Kingdom, could propel the Dollar onto more gains.

Written on 11/02/2020 by Han Tan, Market Analyst at FXTM

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 A Camel Is A Horse Designed By Committee.

US equities were stronger Monday, S&P500 up 0.5% heading towards the close. Fixed income was less upbeat, US ten-year treasury yields fell 3bps to 1.55%, and the 2s5s curve has inverted again. With no new US data to guide sentiment, the market was left balancing last week’s good -weather friend that boosted US jobs in January and capped-off a surprisingly good month of US data. Against the plethora of economic as well as virus transmission unknowns around the nCoV.

On the latter, the number of cases on a cruise ship docked in Japan has doubled, while the number of globally confirmed cases has increased above 40,000. The WHO Director-General noted some “concerning instances” of the virus spreading “from people with no travel history to China.” Equities outside of the US were mixed. Oil fell 1.5%.

For now, US growth trackers are holding up well.

However, questions around the timing and to the extent the China nCoV slowdown is unknown, and it will likely remain so for a while. And while how the economic knock-on contagion effect from nCoV hits, the US might be significant. Thus far, it has not been much of a factor for the US data.

But to that end, this weeks US data deluge, including industrial production, retail sales, and UMich surveys. However, it’s the forward-looking outlook for industrial production (and supply chain disruptions), that will drive the narrative.

Since there is relatively little known about nCoV and its effect on the global economy, it’s difficult to speculate about

. And while the implications are going to be hugely detrimental for the Chinese economy. But how negative remains the million-dollar question. It is most likely to be short-lived and transitory. Still, there is always a chance it could have a more prolonged, demand damaging effect.

One of the enormous dilemmas for investors is whether the impact of the coronavirus will be enough to derail the global economy and usher in another round of Fed + easing. Until concerns around the virus surfaced, global growth was improving, and Asia was showing ongoing signs of acceleration. If the fears subside, the debate will quickly turn to how fast the recovery will come.

But in the meantime, investors are left with the unenviable task of weeding through increased yet conflicting web traffic around nCoV with the headline generators working overtime. Indeed, a camel is a horse designed by committee.

US exceptionalism is coming to the fore, and it’s not hard to see why. The US economy, especially the new 2020 data, was – quite simply – outstanding. From the job report to the manufacturing data, it is difficult to point to something and say it was a harbinger of negativity. But more telling for US stock markets is that of the 317 companies in the S&P 500 have reported so far, 76% of them beat estimates. By this measure, we are witnessing the second most positively active Q4 season since 2010. Indeed, US exceptionalism is in part driving capital and supporting the US dollar as the DXY is back touching August -September level.

At the moment, the data is pointing to the US entering the nCoV slowdown with quite a bit of strength, which is a huge plus. And while nCoV is undoubtedly a negative for the overall growth in the economy. Still, markets seem to think it is not going to be the “worst-case” with little demand destruction outside of commodity markets. Sure, it could be wishful thinking, but that is what markets appear to believe. A shock to growth, not smashing it to smithereens.

Oil markets

The markets have gone well beyond weakened risk sentiment as its clear as a bell, that demand is not sufficiently responsive enough to lower prices. And now oil-price weakness in an oversupplied market has the December Red’s bellwether Brent spreads bearishly moving into contango.

OPEC ministers seem to have abandoned the push for an emergency meeting to finalize a supply response to the coronavirus likely stymied by Russia, indicating it needed more time to assess the situation – after the technical panel had recommended a further quota cut of 600kbd.

Adding to oversupply concerns is the UN-led talks aimed at ending the ongoing Libyan conflict. And Libyan production could ramp up quickly, which has fallen from close to 1.2mb/d to a 9-year low of 180kb/d. as a result of port blockades during a period of escalating tensions between rival Libyan factions. The possible return of Libyan production during this exceptionally supply sensitive period could be the proverbial straw that broke the camels back for the lack of a better analogy.

And while OPEC and friends dither, a bearish awareness continued to unfold concerning the absolute demand damage that the shut-down of the swathes of the Chinese economy is going to do to oil demand is now seeing prices sinking again after the initial fall and then rebound.

Gold markets

Gold initially moved higher despite a strong USD, and prices were further bolstered on the back of political developments in Europe Gold rallied on modest-quality asset buying as a ‘risk-off’ mood persisted in European and Asian markets. But gold prices veered lower in US markets as S&P 500 rallied to record highs supported by strong corporate earnings while US growth trackers are holding up well.

The announcement that Annegret KrampKarrenbauer, leader of the ruling center-right Christian Democratic Union, intends to resign, opening up the race to succeed Angela Merkel as Chancellor of Germany, triggered gold demand across Germany yesterday.

But bond yields continue to edge lower and are reflecting investors fear about the rapid spread of the virus. Ultimately long Bond and Gold positions are similar to “stimulus trades/hedges. “The PBoC has already turned on the policy taps while there’s the assumption that if the economic contagion effects from the virus hit the US economy, Powell will have the markets back.

The nCoV adds to a growing list of economic growth concerns that could see the Fed shift into dovish gears later in 2020. Gold traders always take their cues from US bond markets, so with another dip in US yields, it’s perceived supportive for gold. But ultimately, for gold, its how the Fed policy unfolds in 2020.

Currency markets 

The US dollar 

US exceptionalism is in part driving capital and supporting the US dollar as the DXY is back touching August -September level. Just as was the case throughout 2019, when the US dollar weakens currency traders look at themselves and ask why they are selling the dollar when US equities continue to make record highs.

The Yuan

The RMB markets have been remarkably orderly thanks to the PBoC, who continue to lay stimulus on thick and heavy. And despite the 6 billion + in equity outflows, the Yuan remains supported by policy guidance.

The Malaysia Ringgit

The market remains extremely concerned about an escalation of cases outside of China, which could continue to hold back risk until there’s a definitive sign the coronavirus transmission has slowed. And uncertainty about renewed/secondary outbreaks becomes obsolete.

China starts to return to work after the extended Lunar New Year holiday. How quickly production resumes signals how much global supply chains are likely to be damaged, and this will be a key metric.

But there appears to be considerable reluctance from foreigners o buy into the Ringgit and KLCI stocks at this stage. So, until it becomes clear what the economic fallout from disruption to supply chains and Chinese demand. sentiment could remain on the offs

The Singapore Dollar

Most of the market focus has fallen on the Singapore dollar and why the MAS verbally intervened on the band as opposed to lowering rates. MAS likely believe the virus effects will be transitory, preferring to keep policy powder dry in case there is significant deterioration to the economy beyond tourism.

The Australian Dollar

Concerns about the coronavirus outbreak kept vols elevated as there is plenty of fear around Australia’s export outlook of late. And as far as that goes, nothing comes close to iron ore. It’s easily Australia’s biggest export, accounting for 4% of GDP. And 80% of it goes to China. So, until the full extent of China’s economic damage is known, the virus that’s the most significant present and future risk to Australian trade and the AUD.

And while traders don’t want to get caught on the other end of PBoC infrastructure deluge, for now, the path of least resistance based on current trade metrics looks south for the Aussie.

The Euro 

Besides US exceptionalism, the Euro is trading weaker on German political uncertainty after Annegret KrampKarrenbauer, leader of the ruling center-right Christian Democratic Union, intends to resign, opening up the race to succeed Angela Merkel as Chancellor of Germany.


Weekly Outlook: Out with a Sigh

The dollar fell against all the major currencies, but not by that much.

For the year as a whole however, the dollar was up. What’s really noticeable though is the narrow range of currencies during the year. They ranged from -5.2% for SEK to +4.3% for CAD. By comparison, last week’s best performer, NOK, was up 1.8% vs USD during the week – comparable in magnitude to its overall 2019 performance of -2.0%.

The main reasons for the sluggish volatility in 2019 were economic and monetary policy convergence. I expect less of both in 2020, for two reasons:

  1. The US-China trade war is dying down. That means economies should recover, but at different paces.
  2. Inflation seems to have bottomed. As it accelerates, countries are less likely to cut rates (which tends towards convergence, as rates can only be cut just so far) and maybe, possibly, conceivably some countries could start thinking about hiking rates, which would encourage monetary policy divergence.

I look for Germany, with its dismal economic performance recently, to be a major beneficiary of increased global trade. In addition, the European Central Bank (ECB) is seen as having a relatively high probability of hiking rates in 2020, although frankly I would be astonished if they did – I think maybe these figures are distorted by end-year factors and don’t reflect actual market views.

On the other hand, the dollar on average rises ahead of a US election, although the average may not have much meaning in this case when the dispersion is so great. Still, I think Trump has been such a disaster for the US and the world that any indication that he might be removed from office, either by impeachment or election, should help the US currency.

This week: a becalmed holiday market likely

The main feature this week of course is the New Year’s holiday. Most of the world will be off on Wednesday, New Year’s day, while Japan will be off Tuesday through Friday. New Zealand and Switzerland will be off on Thursday as well as Wednesday. In any case, I expect a lot of people will take the week off and markets will be thin.

Not only is there a major global holiday, but in addition there’s only one major US and one major EU indicator out during the week. No central bank meetings and only the minutes from the latest FOMC meeting out on Friday (plus a couple of Fed speakers that day). It looks to be pretty dull!

However, beware. On average, the last and first week of the year have slightly higher-than-average volatility, but not terribly so.

But occasionally they are the most volatile weeks of the year, probably because the market is so thin. As long as nothing untoward or unexpected happens, you’re probably safe spending your time a) partying and b) recovering from partying, but you might want to cover any open positions just in case.

This week’s indicators: final PMIs, FOMC minutes

The indicators, such as they are, are the final manufacturing purchasing managers’ indices (PMIs) for the major economies as well as the PMIs for those countries that haven’t announced yet. In addition, the Institute of Supply Management (ISM) announces its manufacturing index. For the US, we also get the Conference Board consumer confidence index on Tuesday, while in the EU, we get German CPI and employment data on Friday.

The final manufacturing PMIs are normally expected to be unchanged from the preliminary versions – that is, the preliminary version is as good a prediction of the final version as any. One exception this month is that the UK manufacturing PMI is expected to be revised up slightly to 47.6 from 47.4. I doubt if it will make any difference however.

The ISM manufacturing PMI, out on Friday, is expected to rise notably, but still be below the “boom or bust” line of 50. By comparison, the Markit version of the same index didn’t fall below 50 during 2019. It was more or less unchanged in December, which makes me wonder why the ISM version should rise sharply during the month. If it does anyway, that’s likely to be positive for the dollar.

The Conference Board consumer confidence index is expected to rise slightly. This is no surprise as consumer confidence is basically a function of the stock market and the unemployment rate, both of which are going in the right direction. Maybe it also reflects hope that Trump gets kicked out of office? USD positive

The minutes from the 11 December FOMC meeting will be released Friday afternoon. I doubt if the discussion of the economic outlook will turn up anything new, as most Fed officials who’ve spoken since the meeting have largely endorsed Chair Powell’s message that monetary policy is in the right place barring a “material reassessment.”

One point of interest will be what it would take for the Fed to hike rates. Powell raised the bar for hiking significantly when he said, “I would want to see a significant move up in inflation that is also persistent before raising rates to address inflation concerns.” However, he was careful to note that that was his own view. It will be interesting to see what the views on this important point are among the other committee members.

The market will also want to see the discussion about the Fed’s policy review. This review may well result in a change to the Fed’s inflation target away from a “hard” target of 2% to more of a “soft” target, such as “2% over time” or other way of allowing inflation to rise above 2% temporarily to make up for times that it was below 2%. Any move in that direction would probably be negative for the dollar as it would reduce the odds of a rate hike any time soon and indeed could increase the likelihood of a cut, since there would be less concern about overshooting the target.

There are a few Fed speakers on Friday: Richmond Fed President Barkin (non-voter/hawk), Dallas’ Kaplan (voter/neutral), Fed Governor Brainard (voter/neutral), San Francisco’s Daly (non-voter/dove), Chicago’s Evans (non-voter/dove) and However, only Barkin and Kaplan are likely to comment on the outlook for policy.

The other three will be appearing on a panel discussion at the American Economic Association meeting to discuss women in central banking, although they may say something of interest to the market during the Q&A session.

Other US indicators out during the week include advance trade balance and pending home sales on Monday.

As for the EU, the main point of interest will be the German inflation data on Friday. Inflation is expected to pick up notably during the month, which should be bullish for EUR.

The German employment data and Eurozone money supply, including bank lending, are also going to be released on the same day.

There are no major indicators out for Japan, Canada, Australia or New Zealand. Pretty dull!

This article was written by Marshall Gittler

The Most Influential People of 2019

If we had thought that 2018 was a year to remember, we were certainly not disappointed with 2019.

The U.S and European equity markets hit record highs going into this week’s holidays and the extended U.S – China trade war ended in a phase 1 trade agreement.

Perhaps more so than in any other year, geopolitics gripped the global financial markets more so than the stats. There was monetary policy also in focus, however, as the markets went on a rollercoaster ride of rising expectations of a recession to economic euphoria.

Without a doubt, the U.S President continued to be the global financial markets’ main protagonist.

Donald Trump

The U.S President was the center of attention in 2019 and continues to be with a week to go as we approach a new decade.

It all started back in early 2018 when Trump hit aluminum and steel imports with tariffs. Few would have anticipated the U.S President to hold is ground for an unprecedented 20 odd months to deliver a phase 1 agreement.

When you throw in the USMCA, which finally got the seal of approval after a year of wrangling, it’s hard to argue against Trump’s success at making America great again.

In spite of continued economic growth, he even managed to get the FED to reverse rate hikes, while also standing his ground on foreign affairs. A prime example was the HK Bill in support of the HK protestors. Few would have allowed such a bill to pass at such a delicate time in U.S – China trade negotiations.

To be frank, many had argued that he would only have his first 100 days to deliver on campaign pledges…

They couldn’t have been more wrong.

What he plans to deliver going into next year’s presidential election campaign remains to be seen but it’s likely to be bolder than the last one…

Boris Johnson

Boris Johnson’s sheer political resilience and persistence deserve a top 5 position. After disappearing into the political wasteland alongside the likes of David Cameron, there was a swift revival in late 2019.

Theresa May, Brexit, and ritain were on the ropes. With a minority government, Johnson failed in Parliament with a string of defeats before defying the odds.

Contrary to the EU and the Establishment’s threats, Johnson garnered a revised Brexit agreement and even got Parliament to vote in favor.

He then forced a first December General election since 1923 to deliver the Tory Party’s best outing since Thatcher’s heyday…

The Tories are now with a sizeable majority and finally reunited, with the British PM in prime position to draw the best out of the EU over the next 12-months.

And let us not forget, his pal sits in the Oval Office, just across the Pond…

Jerome Powell

In a year where many failed to stand up against the U.S President, Trump’s nemesis managed to avoid delivering zero interest rates. In a calm and collected manner, the FED Chair steered the U.S economy away from a recession. Powell managed this without the fanfare that we saw with his predecessor.

Trump may lay claim to the sustained growth and optimistic outlook, but the FED Chair does need some if not, most of the recognition. After all, the phase 1 trade agreement only came into being in the final month of the year…

Nigel Farage

If Boris gets a mention then Nigel also deserves a spot in the top 5. Firstly, he upset the apple cart in the EU elections, raising anti-EU sentiment in Brussels. He was then also a key figure in the Tory Party’s euphoric victory in early December.

His decision to fall on his sword to deliver a Tory Party victory was a rare event in politics. He did ultimately ensure Brexit. The people responded in kind, giving Johnson his majority to wrap up Brexit by the end of 2020…

HK Rioters

While there may have been a few that got things going, it was the sheer numbers. The unity seen across HK through late 2019 deserves a spot. While the violence could have been avoided, Hong Kong’s will to retain its identity was an impressive one. It was some time ago when the world saw images of Tiananmen Square and Tank Man. 30 years to be precise.

There was not be a single iconic picture to resonate with. The length of the stand against China and outcome, however, was impressive. Beijing and the world saw firsthand just how passionate the Cantonese are in retaining their identity.

And finally,

Nancy Pelosi

In terms of U.S politics, it was a trailblazer year for the Democrat. She became the first-ever woman speaker of the U.S House of Representatives. If that wasn’t enough, she also delivered just the 3rd impeachment in history.

Anyone who achieves such feats deserves a spot in the top 5. She may not get to oust the U.S President, but she has certainly achieved political greatness. That’s quite remarkable when considering the political landscape.

Powell and Trump were both in 2018’s top 5. We now have Boris and Donald on either side of the Pond. It will be interesting to see who makes it into next year’s list…

Gold, USD and the Euro: the Signs Ahead

Gold didn’t react decisively in the short run overall, but the European currencies: the euro, and the pound rallied. In the first part of today’s analysis, we’ll focus on what happened in the euro and how the forex situation fits the other gold price predictions.

Let’s start with the long-term chart featuring gold prices in terms of the euro.

Gold in the Eyes of the Europeans

The most important thing about gold’s performance is it’s 2019 attempt to break above the 2011 highs. It succeeded but only for a short while. The breakout was invalidated almost instantly as it was clear that gold is not able to withstand the selling pressure. Invalidations of breakouts tend to be very bearish developments and this time was no exception. And just like that – gold declined.

It’s been a few months since gold topped and gold – looking from the long-term perspective – is now only a little lower. Some may say that it’s proof that gold is just correcting after a big rally and that another big upswing is just around the corner. But that’s not what the chart facts support.

The fact is that gold failed to break above the previous high, which is bearish. Looking at the short-term performance, it might be both: correction or the early part of the decline, but so far nothing happened that would justify the bullish interpretation.

In particular, please note that back in 2012, when gold also tried to break above the previous high (and it actually succeeded in terms of the monthly highs), and failed, it also declined at a relatively slow pace initially. That didn’t prevent gold from declining very rapidly in the following months.

This means that if you’re using euro for your day-to-day transactions (for instance, because you live in Western Europe), then you shouldn’t count on the continuation in gold’s rally in the following months. In fact, something exactly the opposite could take place.

If you’re using U.S. dollars for your day-to-day purchases, the above is also very important to you. In this case, the above chart implies that the value of gold is likely to decline relative to what the EUR/USD currency pair will be doing.

And the EUR/USD pair.

The Euro and the Dollar

The Euro Index – proxy for the above – is at its medium-term resistance. Being at an important resistance without breaking above it means that the price is likely to move down. That’s how resistances work.

Moreover, please note that the entire September – today decline is one big prolonged shoulder of the bearish head-and-shoulders pattern (the early-2019 rally being the head). This means that once the Euro breaks significantly lower (perhaps triggered by one of the market news scheduled for this week) – below the previous 2019 lows, it’s likely to fall particularly hard. The size of the decline that follows the breakdown below the head-and-shoulders pattern is likely to be similar to the size of the head, which in this case means a move below the 2017 low. Of course, this would have major repercussions for many other markets, including gold.

If the euro declines that significantly, breaking below its 2017 low, and at the same time – based on the previous chart – gold declines more than the euro, gold would likely truly plunge in terms of the USD. Of course that’s not the only factor that points to this outcome, but it’s something that confirms other, even more important factors.

The full version of this analysis isn’t just about gold in euro terms though. There, we cover the immediate action in gold, silver and the miners in light of the USD Index twists and turns. Plus, we feature a little known sign that gold’s low volume just flashed, and show you its reliability. And of course, you’ll also find there the key factors at play and the targets of our promising short position. We encourage you to join our subscribers and reap the rewards. Subscribe today!

The above article is a small sample of what our subscribers enjoy on a daily basis. Check more of our free articles on our website, including this one – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. You’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all our care. Sign up for the free newsletter today!

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Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

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Forex Daily Recap – DXY Kept Hold Gains Post-Release of FOMC Minutes

USD Index

Greenback continued to linger in the upper vicinity of the Bollinger Bands, keeping intact accumulated gains.

US Dollar Index 1 Day 21 August 2019
US Dollar Index 1 Day 21 August 2019

Later the day, the July FOMC meeting minutes came out at around 18:00 GMT. The policymakers indicated that the last rate cut was a “mid-cycle adjustment”. The Fed officials also added that the rate cut shouldn’t be taken as a “pre-set course” for future cuts. Quite surprisingly,  the minutes also noted that few members wanted a 50 bps cut, based primarily on the weak inflation readings.


Cable continued to stay consolidated near 1.1264 level on Wednesday. Red Ichimoku Clouds and adjoining base line of the indicator were hovering above the pair. Anyhow, the conversion line stood well below the GBP/USD pair, pouring cold water over the bearish sentiment. Also, the Relative Strength Index (RSI) was taking rounds near 37/41 range level, upkeeping a neutral market perspective.

GBPUSD 1 Day 21 August 2019
GBPUSD 1 Day 21 August 2019

At around 08:30 GMT, the UK July Public Sector Net Borrowing came out, disappointing the market participants. The Net Borrowing recorded near £-1.971 billion over £-2.650 billion estimates.

Meantime, today, German Spokesperson, Steffen Seibert proclaimed, “Germany prepares to accept a disorderly Brexit, considering the realities.” The Spokesperson also added that the country always would prefer an orderly Brexit. However, Steffen highlights the importance of accepting the reality in case of an unavoidable no deal EU-UK divorce.


The daily volatility in the Aussie pair remained choppy as the day was approaching closing. Notably, the AUD/USD pair had opened up near 0.6778 level and was +0.15% up in the North American session. Earlier the day, the July MoM Westpac Leading Index reported upbeat data this time. The Leading Index recorded 0.14% over the prior -0.08%.

AUDUSD 1 Day 21 August 2019
AUDUSD 1 Day 21 August 2019

Anyhow, the bulls appeared quite out-of-mood to make some rigorous moves today. Nevertheless, the AUD/USD pair stood underway struggle to breach above the 23.6% Fibonacci retracement level or 0.6818 level. Ability to break above aforementioned resistance handle would immediately activate the upside barriers near 0.7037 and 0.7075 marks. Additionally, the Stochastic line (%K) was showing resilient movement, moving above the %D line of the indicator, pleasing the buyers.


After testing the sturdy 1.3323 resistance, the Loonie pair was heading downside into the red Ichimoku Clouds. Here, the Clouds were acting as a strong support region, disallowing the bears’ entry. Also, the MACD line and the signal line of the MACD technical indicator appeared to look south side today.

USDCAD 1 Day 21 August 2019
USDCAD 1 Day 21 August 2019

Anyhow, the below-lying Parabolic SAR helped to keep the tempo higher, providing near-term hopes to the bulls. Upbeat July Canadian Consumer Price Index (CPI) remained as the primary driver that lifted the CAD currency. However, such a price action had an inverse impact on the Loonie pair allowing the bears to take over the pair. The July YoY BoC CPI Core rose 0.3% over the previous 0.0%. Also, the MoM CPI data surged 0.2% in comparison to the prior 0.1%.

On the other hand, the Crude prices also grew, further pushing down the USD/CAD pair. Today, EIA Crude Oil Stocks Change computed since August 16, published -2.732 million over -1.889 million forecasts. Hence, the inventories drop signaled for a rise in the demand for the commodity, allowing a price upsurge.




Daily Wrap – The Fed vs The Markets – Part II

We knew the rates market had a pre-set vision of an easing cycle, pricing in some 66bp of cuts through to December, and some 108bp through to December 2020. Obviously, front-end Treasury yields and global bonds more broadly had been the beneficiary of this implied policy path, with funds subsequently being pushed further and further out of the risk curve in search of yield, with the hunt for duration feeding into credit and equity. So, the risk was always that if we didn’t hear what we wanted to hear we would sell out of bonds, which would cause higher implied volatility, negative gyrations in equity markets and cause financial conditions to tighten.

A hawkish cut

Well, that scenario played out. Granted, the actual statement came out just as the market had anticipated, with a 25bp cut to the fed funds rate, a formal end to its balance sheet normalisation program (QT) and two dissenters (George and Rosengren were against easing). With narrative that the board will “act as appropriate to sustain the expansion”.

This, in itself, gave us a feel we were leaning to a hawkish cut, but things got spicy in markets when Powell spoke. The focal point of what we initially heard was this 25bp cut was a “mid-cycle adjustment to policy”, and that this was an insurance cut to keep in check the fallout from considerations such as trade. That we should not just consider that we had a 25bp cut, but it should be taken into context of the broader trend in policy, with the move to a patient stance, which is now accommodative, and that in itself is providing a more holistic support cushion to a resilient US economy.

It was a cut that many saw a really just taking out the December hike.

The Fed picking a fight with the market – the market will always win

“Mid-cycle” was all that mattered though. That was the red flag, and the market heard enough evidence that its implied easing path was thrown into question. The result, hardly surprisingly, was a move in US 2-year Treasury’s from 1.82% into 1.96%, with the 2s vs 10s yield curve falling 11bp to 10bp. The USD went on a run, with USDJPY tracking into 109, while EURUSD broke the triple bottom at 1.1106, taking the DXY higher for a ninth straight. AUDUSD fell from 0.6891 in to 0.6832, with EM FX finding a wave of offers as you’d imagine.


Gold fell $16 into $1410, with gold stocks hit hard, while the S&P 500 was sold 1.8%. The market was viewing this as a policy error, and flashbacks of Q4 18 were all too evident…the market hadn’t heard what it wanted to hear, and let the Fed know how they felt.

Powell is becoming well known for his pivots, and in this case, it’s almost as though he had someone in his ear telling him the market reaction, that towards the latter stage of the press conference, he walked back his earlier view. Once again, it’s clear. In an easing cycle, it’s the market that set policy, not the Fed, and if you want to challenge that dynamic, we will see volatility.

To clarify the “mid-cycle” comments, Powell detailed he meant it wasn’t the start of a long cutting cycle, and that he “didn’t say just one rate cut”. This narrative saw support kick back into bonds with a decent reversal in 2s, with the S&P 500 rallying to ultimately close 1.1% lower on the session. The rates market closed the day pricing a 64% chance of a September cut, so Powell has managed to install some belief the market is still on the money, but it feels like the communication with the markets is on more shaky ground.

The market needs time to regroup

The market now needs a couple of days to really digest this, and quite often in these meetings, the first move is not always the right move. We were hoping for clarity, and what we have been left with is more questions, so its back to listening to the Fed and ideally the man who many feel is the real governor on the board – Richard Clarida. That said, in the near-term, the most immediate scheduled speaker is James Bullard (7 August).

We will be keeping an eye on tonight’s (00:00aest) US ISM manufacturing, which after the overnight Chicago PMI, which came in at a woeful 44.4 (vs 51.0 eyed), surely holds downside risk to the consensus call of 52.0 on that index. After that, it’s on to Friday’s US payrolls, although when the Fed is looking more closely at inflation expectations and trade, the payrolls print should affect pricing too greatly, unless its an absolute disaster.

A weaker Asia open

The wash-up is we will see a weaker open in Asia, with the ASX 200 called to open just below 6800. The Hang Seng, Nikkei 225 and China should open around 1% weaker, and there is little in the way of data to really influence here. Gold stocks will find sellers easy to come by on the open, while on a more diversified level, BHP is indicted to open 1.6% lower. It’s not an ideal day for RIO to report numbers (after the bell), but even though we’ll see sellers on the open, there won’t be any panic. In fact, the open will offer a lot in the way of psychology, and I will be looking to see if traders buy the opening weakness or add onto the weaker open.

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Chris Weston, Head of Research at Pepperstone.

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Forex Daily Recap – Fiber Plummeted to a 2-year Low Post-Fed Rate Cut Decision

US Dollar Index

Finally, the Federal Reserve (Fed) has lowered the interest rates by 25 bps this time as per market estimates. The rate decision had taken over rising concerns of a fragile global economy and muted inflation rate. Meantime, the policymakers also mentioned about leaving the door open for further rate cuts, depending on the incoming data.

US Dollar Index 1 Day 31 July 2019
US Dollar Index 1 Day 31 July 2019

Following the rate cut release, the Greenback bulls gathered some extra energy and breached the sturdy 98.32 and 98.35 resistances. Earlier the day, the July ADP Employment Change reported 56K higher than the market hopes and 44K above the previous figures. Some, the July Chicago Purchasing Managers’ Index data release disappointed the market participants. The Index came around 13.96% lower than the consensus estimates of 50.6 points.


Healthy 1.1158 resistance handle continued to restrict the pair’s upside even today. The EUR/USD pair had remained almost muted since July 23. However, the bulls attempted to test the 1.1158 resistance in the European trading session. Anyhow, the aforementioned resistance, in combination with a major counter trendline pushed the pair downwards.

EURUSD 240 Min 31 July 2019
EURUSD 240 Min 31 July 2019

Some crucial Eurozone-specific macroeconomic data came out on Wednesday morning. Few of them remained in-line with the market hopes, and few pleased the buyers while few made a disappointing data release. Notably, the Eurozone Q2 GDP reported slightly higher than the consensus estimate of around 1.0%. Needless to say, the Eurozone July YoY CPI Core reported 1.0% over 0.9% forecasts. Meanwhile, the Italian Q2 GDP recorded higher than the negative market expectations. Also, post-Fed rate cut release, the Fiber dropped to 1.1082 level, last touched in 2017.


Today, significant Consumer Price Index (CPI) data releases remained in the center stage for the Australian economy. The highly significant Q2 QoQ RBA Trimmed Mean CPI recorded 0.1% higher than the previous 0.3%. Also, the Q2 QoQ CPI reported a whopping 0.6% rise as compared to the last 0.0%. On the backdrop of supporting economic data, the AUD/USD pair breached out of a 13-day old downtrend channel. Simultaneously, the Relative Strength Index (RSI) displayed an upshot, jumping from 28 levels to 40 levels.

AUDUSD 240 Min 31 July 2019
AUDUSD 240 Min 31 July 2019

If the pair had drifted more upwards, then it could have encountered the robust 0.6911 resistance handle. Anyhow, the 50-day SMA had crossed below both the 100-day and 200-day SMAs, forming a “Death Cross”. At 18:00 GMT, the Fed announced a 25bps rate cut as per expectations, allowing the Greenback to surge. On the contrary, such an upliftment in the USD Index discouraged the Aussie pair bulls. Post rate cut decision, the AUD/USD slipped and was testing the 0.6863 support handle.


At around 19:00 GMT, the Chinese Yuan pair was forming a Doji Candlestick pattern on a daily chart, revealing net zero change since the last closing. Notably, the USD/CNY pair was making rigorous attempts to make a breakthrough out of the healthy 6.8936 resistance since June 20.

USDCNY 1 Day 31 July 2019
USDCNY 1 Day 31 July 2019

Even if the pair had made a triumphant march breaching above the aforementioned upside barrier, then the 6.9315 resistance would have got activated. Nevertheless, a 1-month old ascending support line was in place to limit pair’s daily losses.  During the early hours, the Chinese July NBS Manufacturing PMI recorded 49.7 points over 49.6 points forecasts. Somehow, the July Non-Manufacturing PMI reported 1.49% lower than the street estimates of 54.5 points.


Forex Daily Recap – Fiber Nudged Lower over Downbeat PMI Data


After hitting the significant 200-day SMA at 1.1281 level on July 18, the Fiber took a rebound price action, heading to the south. Even today, the EUR/USD pair kept plunging and hardly saw any upside. The tumbling rally consisted of multiple Doji candlesticks, showing a continuation of the downtrend. However, a move to the upside would have enabled the pair to challenge the overhead significant SMA conflux.

EURUSD 240 Min 24 July 2019
EURUSD 240 Min 24 July 2019

On the economic docket, the downbeat outcome of the two significant high volatile events disappointed market participants. One among the duo was the German July Markit Manufacturing PMI which reported 4.88% drop over 45.2 points estimates. The other one was the Eurozone July Markit PMI Composite which came out 1.17% below the market hopes of around 52.1 points. Also, while moving downwards, the EUR/USD pair breached away the healthy 1.1193 and 1.1182 support handles.


An overhead strong resistance conflux continued to put a lid over the Cable’s gains even today. This conflux consisted of a 1-month old descending slanting resistance and 100-day medium-term SMA.

GBPUSD 240 Min 24 July 2019
GBPUSD 240 Min 24 July 2019

After showcasing some adverse price actions last day, the GBP/USD pair ensured to take the flight to recovery today. Today, Boris Johnson took charge of the office as the new UK Prime Minister. Boris was put under pressure on his first day as the PM by both Donald Tusk and Michel Barnier to explain his Brexit plan “in detail“. Britishers continue to stay tensed, fearing a hard Brexit in the near term. The RSI was indicating 60.68 level, revealing an almost overbought condition.

USD Index

The Greenback ensured to keep the daily volatility within the vicinity formed by 2:1 and 3:1 Gann lines. Hence, the uptrend remained intact in the overall price actions of the USD Index. Though there occurred a slight downfall in the initial hours of the day, the Greenback bulls managed to recover those early morning losses laterwards. Both the July US Markit Manufacturing PMI and PMI Composite missed estimates. Also, the June MoM New Home Sales came around 0.646 million over the market hopes of 0.660 million. Despite that, the July Markit Services PMI recorded 0.97% higher than the consensus estimates of about 51.7 points. If at all, the USD Index made a move to the downside, then the market attention would have turned over to the below-lying significant SMAs. The histograms of the Moving Average Convergence Divergence (MACD) kept pointing to the north, bestowing positive drifts in the Greenback.


The Japanese yen pair had bounced off 107.20 support on July 18, taking the upward path towards recovery. However, after reaching the 108.20 resistance mark, last day, the pair made a downturn. Today, the Ninja was underway the same slump rally, touching 107.96 level. Quite notably, the pair kept on moving in and out of the significant SMAs. The pair remained stuck between the 200-day SMA and the 50-day SMA in the late afternoon session.

USDJPY 240 Min 24 July 2019
USDJPY 240 Min 24 July 2019

Earlier the day, the Japanese May Leading Economic Index reported 94.9 points over 95.2 points forecasts. However, the May Coincidence Index came out 0.19% higher than the market expectation of around 103.2 points. If the pair had broken and moved above the 108.12 level, then that would have activated the resistance stalled near 108.35 level.


Forex Daily Recap – USD/CNY pair was Forming a Cup-and-Handle Pattern


On Monday, the Chinese Yuan pair remained stuck majorly within the 6.8358/6.8487 range bracket. The USD/CNY pair had slipped drastically following positive updates from the US-China trade front. In the G20 meeting, President Trump offered some concessions to the Chinese counterpart. Trump promised no new tariffs and some relaxation over the restrictions imposed on Huawei Technologies Co.

USDCNY 60 Min 1 July 2019
USDCNY 60 Min 1 July 2019

Also, Beijing came into an agreement with Washington to purchase US agricultural products. Hence, the pair had made a downturn following the trade truce news, dropping 0.39% gains, reaching 6.8359 mark on Saturday. Today, the June Caixin Manufacturing PMI reported slightly lower than market expectation, recording 49.4 over 50.0 forecasts. This negative Chinese report allowed the pair to move away from 10-day low, touching 6.8459 level. Strong uptrend seems to lie ahead in the coming sessions as the pair was forming a Cup-and-handle chart pattern.


On the first day of July, the USD Index showcased some great movements, taking the Index from 96.26 level to 96.66 level. At around 15:48 GMT, the Greenback was testing the healthy 96.68 resistance mark. Speculations over a near-by Fed rate cut seemed to loom, considering the deepening uncertainty around the trade front.

US Dollar Index 60 Min 1 July 2019
US Dollar Index 60 Min 1 July 2019

“It does appear that, in particular, the negotiations between the U.S. and China are resuming, which is obviously a positive development but beyond that, ultimately, how those negotiations got resolved is certainly going to be an important factor in thinking about prospects for the global economy.”, said Fed Board of Governors Vice Chair Richard Clarida.

Meantime, the US economic docket displayed mixed reports affecting the Greenback’s daily price actions. The most crucial June ISM Manufacturing PMI reported 51.7 over 51.0 estimates. However, the June ISM Prices Paid reports recorded a 10.65% decline in comparison to 53.0 market hope.


The Euro pair was heading south on Monday amid weaker economic data. The German June Unemployment and Manufacturing PMI data release disappointed the traders. The Unemployment Change came around -1K over -3K market estimations.  The downtrend that initiated on June 28 continued to take over the pair even today. The EUR/USD pair opened up the day near 1.1360 level and remained below the same mark throughout the day. The pair attempted a slight recovery after rebounding from 1.1316 level but got capped near 1.1360 mark. After touching that pivotal mark, the pair dropped 0.56% reaching near 1.1296 level at around 16:47 GMT. The pair had already reached the 10-day bottom in the evening session.


The Aussie pair made the opening for the day near 0.7026 level and kept the downward motion intact. At around 17:15 GMT, the AUD/USD pair was trading near 0.6957 level, 0.99% down since the last closing. During the early hours, the RBA came up with the June YoY Commodity Index SDR. The Street analysts had estimated a 3.4% increase in the Index this time. Somehow, the actual statistics reported a higher figure of around 13.0% over the market expectation of 14.9%.

AUDUSD 60 Min 1 July 2019
AUDUSD 60 Min 1 July 2019

Nevertheless, the leading cause behind the Monday losses remained the RBA rate cut hopes. The market expects the Central Bank to cut the July interest rates from 1.25% to 1.00%, a 25 bps reduction. Speculations underpinned the Australian unemployment figures and the US-China trade deal chaos as the primary driver for a rate cut.








Forex Daily Recap – US Dollar Index Descended to a Three-Month Bottom

USD Index

At around 19:33 GMT, the Greenback was taking rounds near its three-month bottom. The USD Index was pushed off the cliff from about 97.64 levels on June 19. The Index kept a follow-through of the pullback sessions reaching 96.17 levels today. Wednesday’s Fed rate cut hints on “an accommodative” stance continued to weigh over the Index. Reports suggested a Fed rate cut would mostly happen in the near term by July. The US economic docket also failed to provide some significant support to the stumbling USD Index. The US June Markit Services PMI came out 0.3 points lower than the 51.0 forecasts.

US Dollar Index 60 Min 21 June 2019
US Dollar Index 60 Min 21 June 2019

Meanwhile, the May MoM Existing Home Sales data published higher-than-expected reports. The Existing Home Sales data had reported around 5.34 million over 5.25 million estimates. Somehow, the Greenback appeared to ignore these positive data and continued the downtrend.


The Loonie pair appeared to shrug over the plummeting Greenback and rising Oil prices today. The USD/CAD pair was showing some slight recovery movements throughout the day. After marking the day’s opening near 1.3183 levels, the pair touched the day’s high near 1.1328 levels. At around 12:30 GMT, the Canadian April MoM Retail Sales data missed estimates. The market had expected the Retail Sales data to come around 0.2%. However, the actual statistics quoted 0.1% below the forecasts. Adding to this sour sentiment, the Retail Sales excluding Autos reported 0.3% over 0.1% estimates. Meantime, Baker Hughes US Oil Rig Count came near 789 over the last 788. This Crude report revealed a minor increase in the Stockpiles, showing a decline in the demand side. Amid escalating US-Iran tensions, the Crude prices skyrocketed knocking off the highest point near $57.97 bbl.


After quoting the day’s opening near 1.2706 level, the Cable displayed a sharp pullback reaching 1.2643 level. These earlier losses got recovered in the rest half of the day marking daily high near 1.2747 level. The extra energy in the pair’s rigorous movements came out of the falling Greenback. The USD Index had touched the bottom near 96.50 levels in today’s session.

GBPUSD 60 Min 21 June 2019
GBPUSD 60 Min 21 June 2019

Last day, the BoE had left the monetary policy unchanged as per expectation. The Central Bank continued to remain in-line over its May Inflation report. However, the Bank mentioned that it would consider all possible downsides occurring due to various global cues. The Bank has also reduced its Q2 growth forecast from 0.2% QoQ to 0.0% QoQ. Hence, as compared to other Central Banks, BoE’s stance appeared to be lesser dovish. On the UK politics front, Boris Johnson continued to stay ahead of the Tory leadership race.


The Euro pair that had opened up on Monday near 1.1217 levels was hovering near 1.1371 levels today. The EUR/USD pair continued to conquer new heights on Friday’s session majorly over Greenback slowdown. The USD Index was trading near its three month low amidst rate cut hopes. On the events front, France, German, and the Eurozone showcased some astounding reports. The market had anticipated the German June Markit Manufacturing PMI to report 44.5 over the previous 44.3. Quite surprisingly, the actual reports came more than the estimates, recording 45.4. Also, the Eurozone June Markit PMI Composite reported above the market expectation. There was hardly any downside observed in the pair’s movements today and kept the uptrend intact.


Forex Daily Recap – Bond Yields Drop Beyond 2% as Powell Hinted a Rate Cut in July

USD Index

The Greenback continued to extend losses on Thursday’s trading session. At around 12:30 GMT, the USD Index found some support near 96.61 levels and took recovery path. The plunge came in after the Fed hinted of a rate cut by December 2019. Fed Chair Powell would likely exercise an “insurance cut” by July. Following the Fed announcement, the US 10-year Treasury Bond Yields dropped and moved below 2%.

10-Year Bond Yield
10-Year Bond Yield

On the events front, the US Jobless Claims figures reported lower-than-expectations, which allowed the Index to reverse trend today. The Continuing Jobless Claims computed since June 7 reported 1.662 million over 1.688 million forecasts. Meantime, the Greenback appeared to shrug over weak June Philadelphia Fed Manufacturing Survey data. This data reported merely 0.3 over 11.0 estimates. A few moments ago, reports suggested that Iran attacked a US military surveillance drone flying over the Strait of Hormuz. Trump confirmed the attacks and tweeted, “Iran made a very big mistake!”. The global conditions seem to grow worse and probabilities of war sets in risk-off sentiment.


At around 16:51 GMT, the Ninja was 1.39% down reaching near 107.24 levels last touched on January 3. The BoJ decided to maintain an ultra-easy monetary policy and kept the short-term rates unchanged at -0.1%. However, the policymakers hinted to maintain the long term interest rates close to 0.0%.

USDJPY 60 Min 20 June 2019
USDJPY 60 Min 20 June 2019

Additionally, BOJ Governor Kuroda mentioned that the Bank would remain flexible over future easing options depending on the incoming data. Also, the Japanese Inflation figures have already missed the target of 2.0%. Despite that, JPY April All Industry Activity Index came out at 04:30 GMT. The consensus had estimated the Index to report near 0.7% in place of previous -0.3%. However, the actual reports recorded 0.2% higher than the market expectation.


The pair continued to follow the tumble rally that initiated on June 19 at 1.0013 levels. The USD/CHF pair had made the opening today near 0.9925 levels. At 17:00 GMT, the pair was testing the 0.9792 support levels last touched on January 14. The Switzerland May Trade Balance reported 540 million higher than the market hopes of around 2,870 million. Meanwhile, the Greenback kept plunging following the Fed interest rate decision. As a result, the falling USD Index and the rising CHF kept the downtrend intact in the pair’s movements.


After marking the day’s opening near 1.2654 levels, the Cable kept hold of the uptrend. The positive sentiment in the GBP/USD pair came mostly out of the Greenback slump. The UK Retail Sales reported mixed figures in the Asian session. The May MoM UK Retail Sales excluding Fuel came out -0.3% over -0.4% estimates. Anyhow, the YoY Retail data reported 0.4% lower than 2.7% forecasts. However, the gains remained limited near 1.2727 levels.

GBPUSD 60 Min 19 June 2019
GBPUSD 60 Min 19 June 2019

Meantime, Jeremy Hunt would compete with Boris Johnson after Michael Gove got eliminated in the latest ballot. In the middle of the day, BoE decided to keep the interest rates near 0.75%. Following the BoE rate announcement, the pair slipped from the day’s high reaching day’s low of 1.2674 levels.

Forex Daily Recap – USD Index Slipped -0.57% over Unchanged Fed Interest Rates

USD Index

The Greenback kept plunging since the Asian session after marking the day’s high near 97.68 levels. The slump rally came in ahead of the FOMC meeting scheduled at around 18:00 GMT. The market had expected the rates to remain unchanged near 2.5%. Trump had earlier mentioned his stance over his dissatisfaction over Fed’s monetary policies. The President had pressurized the Central Bank multiple times before, urging for an interest rate cut. The USD Index had badly fallen in the first half of the day reaching near 97.39 levels.

US Dollar Index 60 Min 19 June 2019
US Dollar Index 60 Min 19 June 2019

Despite that, positive sentiment over the US-Sino trade dispute helped the market to limit the losses. Representatives of both nations would discuss over resolving the trade problem in the upcoming G20 meeting. At around 18:00 GMT, the Fed Interest rate decision came out. The Central Bank has decided to keep the interest rates unchanged at 2.5%. Following the Fed announcement, the US Dollar Index slipped 0.27%, reaching 97.12 levels.


The Euro pair opened up on Wednesday near 1.1197 levels and showcased a slight slip in the early hours. The initial plunge came after the release of weak German May MoM PPI figures. The German PPI reported -0.1% over 0.2% forecast, lowering investor interest. Somehow, the Fiber took support near 1.1187 levels and made a reversal in the overall trend. The EUR/USD pair then soared 0.30% reaching 1.1221 levels amid Greenback fall. The USD Index had dropped significantly ahead of the Fed Interest rate decision. The consensus had expected the rates to remain unchanged at 2.5% this time. Meanwhile, the Eurozone April Current Account reported €19.2 billion over €10.6 billion estimates.


The Cable continued the previous day’s uptrend into today’s trading session. Last day’s poor performance in the USD Index had triggered the positive trend in the pair. On Wednesday, the GBP economic docket displayed some pleasing reports elevating the pair. The May MoM Retail Price Index reported 0.1% higher than 0.2% estimates. Also, May YoY PPI – Input came in higher than market expectation. The Street analysts had hoped the PPI figures to report near 0.8%. Somehow, the reports recorded 0.5% higher than the market forecast.

GBPUSD 60 Min 19 June 2019
GBPUSD 60 Min 19 June 2019

The most significant Inflation indicator – May YoY CPI reported at around 08:30 GMT. The reports remained in-line with the 2.0% estimates. Following such astounding reports, the GBP/USD pair skyrocketed 0.73% touching 1.2636 marks. The falling Greenback had provided the extra support for the elevation in the pair. Meantime, Boris Johnson stands ahead in the Tory leadership race. Boris has secured the backing of around 114 and 126 MPs in the first two ballots.


Yesterday’s slump rally in the Loonie pair got paused near 1.3363 levels and slightly reversed in today’s session. The pair continued to consolidate in the range of 1.3368/83 levels in the Asian trading session. However, the pair displayed a definite Gap down in the early European session. Robust Canadian data allowed the pair to jump directly from 1.3373 levels to 1.3354 levels. The BoC May YoY CPI data came around 0.9% higher than expectations shocking the investor community. Also, the CPI Core was 0.1% higher than the previous 0.2%. In addition to the growing Loonie, the falling USD Index added substantial downward pressure on the pair’s movements. Along with all these factors, the EIA Crude report was higher than analyst estimates.