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Gold has reemerged on the bid since the double bottom on the 18th May, relishing within the broad-based weak dollar environment and DXYdropping back below the 97 handle.

A multi-year downturn in the dollar in the making? – Nomura

Gold has been better bid since DXY lost the 99 handle in a strong offer from 9th May 99.65 highs. The markets are trading on a good mix of political and economic challenges that world leaders are facing and the general risk tone is weighted more negatively. This enables the gold to run higher in times of risk aversion. The key scenario unfolding, however, is that the dollar is losing its safe haven status currently on both the political and economic front. While markets are pricing in rate hikes still this year, there are some doubts as to whether the Fed can sustain the optimism in the wake of weaker than expected key data of late. The 10-year treasuries are showing signs that the 2.3% psychological level is becoming a bit of a ceiling of late and that too is weighing on the greenback.

Gold levels

In terms of levels, Gold is back to 1,260 and made a high of 1,262.79 today. A continuation through 1,265 opens the avenue for 1,270. 1277, 1288 and finally 1292 are the key resistance n the way to the April highs. To the downside, a loss of the 1260 level opens 1255 and the 20 4hr sma as a key support level.

Reserve Bank of Australia (RBA) deputy governor Guy Debelle crossed the wires, via Reuters, suggesting that an increase in the cross currency basis may not be a sign of stress and can be consistent with functioning markets.

Key points (via Reuters):

  • More comfortable with the idea that increase in cross currency basis is not always a sign of market stress
  • Increase in the basis can be consistent with functioning markets
  • Wouldn’t lose sleep over higher basis the “way that I literally lost sleep over it in 2008”
  • RBA’s return enhancement offered by the basis is “highly beneficial”
  • RBA can swap A$ into yen for domestic liquidity management, can earn “substantial return” by swapping various reserve currencies it holds in yen

Analysts at UOB Group explained the Central Bank outlook for the week ahead.

“The Bank of Canada (24 May) is the only G7 central bank with a monetary policy decision this week while the focus of the Fed Reserve is the 2-3 May 2017 FOMC minutes (on 25 May, 2am SG time).”

“We have a few senior Federal Reserve officials (voters in 2017 FOMC such as Harker, Evans and Kashkari) & BOJ Gov Kuroda (24 and 27 May) speaking in public forums.”

Analysts from Danske Bank, point out that next week looks quiet in terms of the economic calendar. Reports include the PMI index.

“In the US, we have a quiet week ahead of us. On Monday, we get Empire manufacturing  PMI and Thursday brings the Philly Fed Index – both for May. In recent months, we have seen a divergence between regional manufacturing PMIs and overall PMI/ISM. However, the gap between ISM and PMI has started to close and we expect regional PMIs to fall from their current extremely high levels. Although we have recently argued that we expect confidence indicators within the manufacturing sector to decrease, we do not expect to see a significant slowdown in actual manufacturing activity when we receive numbers on manufacturing production and industrial production (both for April) on Tuesday.”

“The coming weeks also bring speeches by FOMC members James Bullard (non-voter, dove) and Loretta J. Mester (non-voter, hawk), which are not that important given that we have already heard from both of them recently.”

After rising for two straight days, crude oil prices struggle to extend this move on Friday, with the barrel of West Texas Intermediate moving sideways in a tight range below $48. As of writing, the barrel of WTI was trading at $47.65, losing 0.38% on the day.

In its latest report, the oilfields-services giant Baker Hughes revealed that the number of active oil rigs in the United States increased by 9 to a total of 712, which is the highest largest number since the week of April 17, 2015. Despite the rising number of oil rigs, this data hasn’t been able to move the oil prices in the last few weeks. Including this week, the total number increased for 17 weeks in a row and investors continue to ignore the data as it brings no surprises. A drop in the total number could potentially push the oil prices higher but we are yet to see that.

  • Goldman Sachs: A potential US border-adjusted tax could send WTI to $ 65
  • IEA to review oil demand outlook after China, India signal auto policy shifts – RTRS

On a weekly basis, the barrel of WTI is headed for a higher closing after dropping for three straight weeks and refreshing its five-month low last week at $43.76. As the end of the OPEC’s output cut deal is coming closer each day, rumors surrounding a possible extension to the deal could drive the price action for crude oil in the short-term.

Technical outlook

The initial hurdle for the barrel of WTI aligns at $47 (psychological level) before $47.75 (May 4 high) and $48.25 (May 3 high). To the downside, supports are located at $45 (psychological level), $44.25 (Nov. 10 low) and $43.75 (May 4 low).

Philadelphia Fed President Patrick Harker crossed the wires in the las minutes, via Reuters, arguing that the U.S. economy was now “normal” and its labor market was roughly “at full health.”

Key quotes (via Reuters):

  • Harker repeats support for two more rate hikes in 2017
  • Harker expects U.S. unemployment to fall to 4.2 percent by end 2018

According to analysts from Wells Fargo, the rebound seen today in April CPI data confirms that March’s unexpected decline was “transitory”. They see the data as a return closer to trend performance, that keeps the Federal Reserve on track for a June interest rate hike.

Key Quotes: 

“Extending the theme we have witnessed this week with gains in both headline and core measures of import and producer prices, consumer inflation, as measured by the Consumer Price Index (CPI), also revealed a rebounding performance during the month of April. Admittedly a lower than expected rebound, headline CPI increased 0.2 percent in April from the 0.3 percent decline in March. Energy prices, which tend to be a significant factor in the monthly headline performance, rose 1.1 percent on the month, as all three major components—gasoline, natural gas and electricity—increased. Crude oil prices have fallen substantially in recent weeks and will likely influence next month’s headline CPI performance.”  Continue reading

Giving an interview on Bloomberg TV, Chicago Fed President Charles Evans suggested that the Fed could hike the rates one more time this year if uncertainties about inflation outlook persist.

Key quotes (via LiveSquawk):

  • Fiscal policy poses upside risks to domestic economy
  • Fed is discussing right size and pace of reductions to balance sheet

Fueled by the solid performance of the greenback amid solid macro data, the USD/CAD jumped to its daily high at 1.3770 in the early NA session but quickly erased its gains as the rising crude oil prices gave the loonie a boost. However, as the barrel of WTI struggled to extend its gains, the pair found support at 1.3680 and rose to 1.37 area. As of writing, the pair was trading at 1.3699, up 0.3% on the day.

Today’s macro data from the United States showed that the weekly jobless claims declined for the second week in a row and the total number of individuals who are currently receiving unemployment benefits fell to its lowest level since 1988 at 1,898,000. Other data revealed that the PPI rose more than expected. On the other hand, the Bank of Canada’s Spring 2017 review didn’t offer any insights on the economic outlook nor the monetary policy and was largely ignored by the participants.

  • US: PPI for final demand advances 0.5% in April; services increase 0.4%, goods rise 0.5%

After touching its session high at $48.22, the barrel of West Texas Intermediate fell back below $48 in the last hour. Although there wasn’t a clear catalyst behind that drop, profit-taking ahead of tomorrow’s Baker Hughes data could have triggered a sell-off.

Technical outlook

The pair could encounter the first support at 1.3645 (May 8 low) ahead of 1.3600 (psychological level/Dec. 28 high) and 1.3460 (50-DMA). On the upside, with a clean break above 1.3700 (psychological level), the pair could aim for 1.3735 (2016, Feb. 25 high) and 1.38 (psychological level).

S3 S2 S1 R1 R2 R3
1.3534 1.3590 1.3623 1.3711 1.3767 1.3800
Trend Index OB/OS Index
Bearish Neutral

 

Analysts at UOB Group explained that the Reserve Bank of New Zealand (RBNZ) left its Official Cash Rate unchanged at 1.75%, as widely expected.

Key Quotes:

“In its statement, it said that monetary policy will remain accommodative for considerable period and developments since February on balance considered to be neutral for monetary policy stance. It warned that numerous uncertainties remain and policy may need to adjust accordingly.”

Continue reading

 

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