EURUSD VOLATILITY RISES WITH US INFLATION, EURO ECONOMIC SENTIMENT DATA ON DECK
- EURUSD overnight implied volatility jumps to multi-week highs as forex traders eye Tuesday’s release of US CPI data and ZEW’s Eurozone economic sentiment survey
- US inflation that remains tepid and persistently pessimistic Eurozone outlook will likely weigh on expectations for additional monetary stimulus from the Federal Reserve (Fed) and European Central Bank (ECB)
- IG Client Sentiment data on spot EURUSD indicates that the recent price trend could soon reverse higher
EURUSD continues to show signs of attempting to rebound higher and Tuesday’s trading session could provide forex traders with additional evidence that the Euro may be putting in a bottom against the US Dollar. Although central bank dovishness is being felt across the market, the rise in Fed rate cut bets are anticipated to outweigh those for the ECB which could help spot EURUSD solidify its footing above the 1.12 handle. As such, spot EURUSD will likely turn to upcoming Eurozone ZEW economic sentiment and US inflation report data releases for insight on the currency pair’s next direction.
EURUSD 25-DELTA OVERNIGHT RISK REVERSAL CHART: DAILY TIME FRAME (FEBRUARY 11, 2019 TO AUGUST 12, 2019)
Risk reversal metrics for EURUSD, which have soared since President Trump threatened additional tariffs on China in the latest US-China trade war escalation earlier this month, hints at the growing demand for call options and upside protection relative. A reading above 0 indicates the premium for call option volatility exceeds the premium for put option volatility. Thus, the EURUSD overnight risk reversal reading of 0.295 implies that currency option traders have a bullish bias regarding spot prices by contract expiry Tuesday.
ZEW EUROZONE ECONOMIC SENTIMENT SURVEY CHART: MONTHLY TIME FRAME (AUGUST 2013 TO AUGUST 2018)
Yet, spot EURUSD selling pressure could be sparked if another downbeat ZEW Economic Sentiment Survey out of the EU sinks the Euro. The headline ZEW survey figure for August, which is slated for release at 9:00 GMT according to the DailyFX Economic Calendar, has remained subdued around -20 since October 2018 aside from briefly turning positive for a month this past April. Another sharp drop in the indicator could foretell further deterioration in the Eurozone’s already-sluggish economy, which has potential to accelerate expectations for ECB stimulus.
US INFLATION – CORE CPI YEAR OVER YEAR: MONTHLY TIME FRAME (JANUARY 2015 TO AUGUST 2019)
Spot EURUSD price action could whipsaw or intensify later in Tuesday’s trading session if July US inflation data generates a response when released at 12:30 GMT. Stubbornly-tame inflation has become a growing concern of the Federal Reserve and a primary factor contributing to the July FOMC meeting interest rate cut along with US-China trade war uncertainty. If the reading on core CPI comes in below consensus estimates of 2.1%, it could spur additional Fed rate cut bets and drag down the US Dollar.
SPOT EURUSD PRICE CHART: DAILY TIME FRAME (DECEMBER 25, 2018 TO AUGUST 12, 2019)
That said, EURUSD overnight implied volatility reading of 6.91% sets the currency pair’s 1-standard deviation trading range at 1.1172-1.1254. EURUSD bulls will likely look to technical resistance posed by the 38.2% Fibonacci retracement of its year-to-date high and low before eying the upper bound of the option implied trading range. Looking to potential downside in spot EURUSD, the envelope of moving averages could provide a degree of buoyancy for prices. However, EURUSD bears could target the psychologically-significant 1.12 handle before driving spot prices to test the lower bound of the option implied trading range or technical support provided by the 23.6% Fib.
EURUSD – IG CLIENT SENTIMENT INDEX PRICE CHART: DAILY TIME FRAME (FEBRUARY 13, 2019 TO AUGUST 12, 2019)
According to IG Client Sentiment data, 51.0% of spot EURUSD retail traders are net-long with the ratio of longs-to-shorts at 1.04. The number of traders net-long is 21.4% lower than last week whereas the number of traders net-short is 38.8% higher than last week. Recent changes in sentiment warn that the current EURUSD price trend may soon reverse higher despite the fact traders remain net-long seeing that we typically take a contrarian view on crowd sentiment.
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Gold Price Rally Primed For a Fed Boost, Silver Price Struggling
Gold (XAU) Price, Silver (XAG) Price Analysis and Chart
- Global risk sentiment remains, interest rates look set to go lower.
- FOMC minutes on Wednesday, Fed chair Powell speaks at Jackson Hole on Friday
Q3 2019 Gold Forecast and Top Trading Opportunities
Gold Remains Underpinned and Ready to Move Higher
Gold remains bid and underpinned around current levels and is looking for the next bullish impulse to send it through its recent multi-year high. Risk sentiment, one of gold’s main drivers, remains with US-China trade talks still not confirmed, while in Hong Kong, mass protests continue, and these may well be a hot topic of discussion between the US and China. On Wednesday the latest FOMC minutes, while on Friday, Federal Reserve Chairman Jerome Powell will speak at the Jackson Hole Symposium and he may well give further insights into the central bank’s thinking around the next round of US interest rate cuts. Any hint of that the Fed wants to get ahead of the curve and cut rates aggressively will push gold higher.
The daily gold chart suggest further short-term consolidation as the market unwinds its recent heavily overbought bias. There are a few recent lows between $1,487/oz. and $1,503/oz. that will support gold in the case of any sell-off, while to the upside, $1,520/oz. before $1,528/oz. and $1.535/oz. If this latter level is broken and closed above, then $1,540/oz. is the next upside target.
Gold Price Daily Chart (January – August 19, 2019)
IG Client Sentiment data show that 62.3% of retail traders are net-long of gold, a bearish contrarian indicator. However, recent daily and weekly positional changes give us a stronger bearish contrarian trading bias.
Silver Price Struggling Around Multi-Month Highs
Silver is stuck in a short-term downtrend after hitting $17,51/oz. last week when the commodity space rallied. Since then, silver has made a series of lower high and lower lows and if price breaks below $17,00/oz. then the August 8 and 12 double low at $16.80/oz. will be tested. Below here, the 61.8% Fibonacci retracement at $16, 57/oz. should provide strong support. Silver has moved out of overbought territory and will likely remain in lock-step with the price of gold.
The gold/silver ratio remains stable around 88.60.
Silver Daily Price Chart (August 2018 – August 19, 2019)
What is your view on Gold and Silver – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at firstname.lastname@example.org via Twitter @nickcawley1.
Gold, Crude Oil Prices Eyeing FOMC and ECB Minutes, Jackson Hole
GOLD & CRUDE OIL TALKING POINTS:
- Gold price technical positioning hints at pullback brewing ahead
- Crude oil prices idling near $55/bbl as risk trends await catalyst
- FOMC and ECB meeting minutes, Jackson Hole in the spotlight
A risk-on mood broadly prevailed across global financial markets Friday. Cycle-sensitive crude oil prices edged higher alongside stocks. Treasury bond yields also rose as capital moved away from haven assets, undermining the appeal of non-interest-bearing alternatives and weighing on gold. The anti-risk US Dollar and Japanese Yen likewise declined.
From here, a slow start to an otherwise action-packed week might see key assets idling as traders withhold conviction before forthcoming event risk. Minutes from July’s FOMC and ECB meetings as well as the Fed’s Economic Policy Symposium due to kick off Thursday in Jackson Hole, Wyoming will probably take top billing. Political turmoil in Italy also warrants attention.
With slowing global growth top-of-mind for investors, scope for incoming monetary stimulus expansion is a critical consideration. The ECB is widely expected to ease next month, but its preferred delivery strategy is unclear. As for the Fed, the markets are priced for 75bps in additional rate cuts before year-end. Such robust hopes may be disappointed by a more reserved central bank, souring risk appetite anew.
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GOLD TECHNICAL ANALYSIS
Gold prices are treading water below the monthly swing high at 1535.03. Negative RSI divergence warns of ebbing upside momentum, hinting that a pullback might be in the cards. A break below initial support at 1480.00 exposes the 1437.70-52.95 zone. Alternatively, a push above resistance aims for a weekly chart inflection level at 1563.00.
Gold price chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices continue to mark time near the 54.72-56.09 congestion area. Resistance defining the near-term bearish bias is now at 58.48, with a daily close above that targeting the 60.04-84 zone next. Critical support is clustered around the $50/bbl figure. Breaking below that sets the stage for a descent to challenge three-year lows just above the $42/bbl mark.
Crude oil price chart created using TradingView
COMMODITY TRADING RESOURCES
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
US Dollar May Rise vs Nordic FX From Trade Wars, FOMC Minutes
NORDIC FX, NOK, SEK WEEKLY OUTLOOK
- US Dollar may rise vs Nordic FX amid trade wars, FOMC minutes, Italian politics
- Critical data out of the Eurozone and US may exacerbate growing recession fears
- Commentary from officials at Jackson Hole symposium could induce risk aversion
See our free guide to learn how to use economic news in your trading strategy!
The US Dollar may extend gains vs Nordic FX if growth concerns continue to pressure cycle-sensitive currencies and redirect capital to anti-risk assets. US-China trade tensions appear to be escalating against the backdrop of growing political uncertainty in Italy. Recessionary fears may be exacerbated this week from the release of the FOMC meeting minutes and commentary from officials at the Jackson Hole symposium.
Financial Markets Brace for Deteriorating US-China Trade Relations
Early into Monday’s Asia-Pacific trading hours, US President Donald Trump held a press conference and said he was not ready to make a trade deal with China and that Huawei posed a threat to national security. Furthermore, he also said reaching a trade agreement with Beijing may be more difficult if the violence amid the protests in Hong Kong continues. Greater friction will likely continue to erode market sentiment.
FOMC Meeting Minutes: Will the Transcript Simply Re-Emphasize the Market’s Worse Fear?
As outlined in my weekly US Dollar forecast, the Greenback may rise at the expense of equity markets when the FOMC meeting minutes are released. The prospect of cheaper credit has remained a key factor buoying investor sentiment as the fundamental outlook continues to dim. What the minutes will likely show is just a more detailed message from the last meeting by Fed Chairman Powell: The Fed is not as dovish as you think.
Jackson Hole Symposium May Pressure Nordic FX if it Exacerbates Global Growth Fears
Fears about the prospect of a recession gained momentum last week after a number of recessionary signals began to sound the alarm. Commentary from officials at the symposium may exacerbate global growth fears and could pressure export-oriented currencies like the Swedish Krona and Norwegian Krone. However, amid the uncertainty and search for liquidity, the US Dollar may catch a haven bid.
G7 Summit Will be Closely Eyed by Investors Amid Rising Geopolitical Tensions
Traders will be closely monitoring the G7 Summit this week in Biarritz, France from August 22-24. Given the current state of rising geopolitical tensions around the world, looking for key developments at this conference will be crucial. Some key topics will include Facebook’s Libra cryptocurrency, US-China/EU trade and discussing the replacement of IMF chief after Christine Lagarde transitions to her post as ECB president.
ECB Minutes May Spook European Markets Despite Prospect of Stimulus
The publication of the European Central Bank’s meeting minutes is expected to carry dovish undertones after central bank president Mario Draghi said monetary authorities are entertaining QE and rate cuts. However, optimism about the prospect of cheap credit may be overwhelmed by gloomy undertones if the overall message of the transcript is prevailing conditions are so severe that they require stimulative policy measures.
A Chilling Outlook for European Growth
Italian Political Uncertainty May Sap Confidence, Weigh on Nordic FX
Political volatility out of Italy will likely sap confidence in European markets and pressure the sentiment-linked Krone and Krona. The Riksbank has repeatedly cited political risk out of the EU as a key source of uncertainty. Deputy Prime Minister Matteo Salvini will attempt to consolidate power and break away from his coalition in order to end cabinet infighting and push forward his market-disrupting fiscal agenda.
Critical Data out of EU, US May Induce Risk Aversion
Traders will also be watching the release of key US and EU economic data. The more notable ones include Eurozone inflation, flash PMIs and consumer confidence, US manufacturing PMIs and new home sales reports. A poor reading from these indicators will likely only strengthen the case for central banks to adopt accommodative monetary policy measures and will likely send a chilling message to Nordic FX markets.
SWEDISH KRONA, NORWEGIAN KRONE TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter
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