- While there was a rise in a range of risk assets – like SPX and emerging markets – it was saddled with skepticism
- The Dollar’s long-term risks with trade wars are growing more mainstream, threatening its recovery effort
- AUD was top performing currency Monday with a range of data, but we face two more rounds with the RBA and 1Q GDP ahead
Do you want to learn how to trade event risk? Download the strategy guide on for trading news events on theDailyFX Trading Guides page.
The Risk Enthusiasm Gap Undermines Trend…So Do Trade Wars
The S&P 500 has gapped higher to start eight of the past nine weeks. And yet, over that same period of time the benchmark has gained remarkably little traction with volatile trade and little promotion of trend development. When it comes to evaluating risk trends, the US benchmark indices offer decent shortcuts. That said, they are not well-suited to measuring true conviction nor the early signs of risk aversion. Rather than labeling this and other US indices general risk measures, we should consider their measure more as a measure of complacency that defaults to short-term risk taking. We can see the lack of depth behind sentiment comparing the different headliners. The S&P 500 and Dow enjoyed the bullish gap but follow through in active trade was notably reserved. The tech-heavy Nasdaq however exhibited gap and follow through to close in on record highs. Even more concentrated was the FAANG collective which has extended its run into record territory on an accelerated rising wedge. We see the same targeted speculative reach without true conviction across global indices (FTSE MIB, DAX, Nikkei 225, etc), emerging markets and Yen crosses. Skepticism should come as no surprise with trade wars in starting to hit their stride.
Dollar’s Fundamental Troubles Start to Grow Apparently, Manifest in Technicals
With the US depressing the accelerator to global trade wars, the implications for global investor sentiment is relatively straight forward. The detrimental influence on global growth readily translates into financial market strength. Yet, there are also long-term regional implications. Though the Trump administration is pursuing tariffs in a bid to offer short-term support for its own economy, the long-term ramifications are exceptionally detrimental to the United States if its global trade partners retaliate in concert. And, that is what they seem intent on doing. In response to the passage of its aluminum and steel tariffs last week; the European Union, Canadian and Mexican authorities all announced economic responses to the US. Before this news, a number of key policy members – such as EU trade minister Malmstrom – said collaborative efforts to respond to the aggressive moves were already being considered. What surprises me is not the market’s concern, but rather its timely recognition of the negative implications for the US. It is already starting to show in the headlines and the hesitation from the dollar is already starting to show in a head-and-shoulders pattern in the DXY Dollar Index (inverse head-and-shoulders for EUR/USD). This is not the sign of a reversal yet, but it is the precursor should it be motivated. Watch the tenor of the headlines and the progress from the Greenback carefully.
The Trouble with Trading a Hyper-Active Aussie Dollar
If there is any single currency that is clearly charged for fundamentals this week, it would be the Australian Dollar. The currency was already off to a remarkably strong start Monday with a range of event risk supporting a launch higher. Though all the various indicators would ultimately support a bullish tone, the first quarter corporate profit charge of 5.9 percent was clearly the leading update. An equally-weighted index for the Aussie Dollar posted shows the best daily performance since July 18. That intensity is difficult to deny, but to simply through conviction behind a strong single session would clearly be very risky given what is on tap over the coming 48 hours. Tuesday afternoon in Australia, the RBA is due to weigh in on its monetary policy bearings. Under normal circumstances, this would be an event of little consequence as they hold steady at record low benchmark. Yet, the change in tone with the RBNZ and BoC recently have changed the market’s sensitivity to monetary policy views for primary carry currencies. Even beyond the policy decision, Wednesday further brings 1Q GDP. This is too much high profile event risk to assume a trend can readily form without interference. Be mindful of your Aussie setups, even when they look as technically appealing as AUD/USD or GBP/AUD.
Oil’s Retreat Surpasses Another Milestone
Crude oil has frustrated many swing traders for months. It has a tendency to forge intense but abrupt moves that fall apart before any progressive momentum trend can form. If you are quick enough to take advantage of the volatility or patient enough to wait out a year-long investment, there was something to this market. Yet, most of us don’t fall into that category. Another attempt at a swing may be under way, but its course seems to have flipped to a bearish bias. The US-based WTI crude oil contract has slid below its 100-day moving average shortly after clearing a multi-month rising trendline support. In other words, the technical implications of a turn are starting to grow more material. Yet, a break is not a trend. Momentum arises from motivation and then conviction. Tempered growth and competing forces of production are working to weigh the supply-demand balance. Yet, we can see an obvious curb on the evolution of a true bear trend when we compare the spread between the WTI and its European counterpart (Brent). The spread has ballooned to just shy of $12. If this market were to tip a full blown bear trend, both would be heading lower at a closer tempo. We discuss all of this and more in today’s Trading Video.
If you want to download my Manic-Crisis calendar, you can find the updated file here.
Brexit Newsflow and Political Manoeuvres
Sterling (GBP) Price Fundamental Forecast:Neutral
Q3 2019 GBP Forecast and Top Trading Opportunities
No UK Data Next Week Will Leave Sterling Vulnerable to Rumor Risk
Sterling has nudged higher over the week, aided principally by slightly better-than-expected wages, jobs and retail sales data. UK inflation also edged higher and in a world without Brexit, these releases would have the Bank of England discussing whether the current monetary policy was appropriate or if it needed to be tightened. However, as has been the case for many, many months, Brexit is still the driver for Sterling and will remain so until October 31.
Next week there is no market moving hard UK data of note, leaving Sterling at risk of Brexit rumors and news flow. The UK market will also be holiday-thinned next week, leaving GBP potentially exposed to outsized moves in limited liquidity markets.
Brexit news flow continues unabated with the latest batch of headlines suggesting that a cross-party alliance of MPs may come together to form a national unity party if UK PM Boris Johnson loses the expected vote of no-confidence likely to be called in early September. The current Labour Party leader has said that he will act as interim PM is this succeeds ahead of an early general election with the Labour Party promising a second referendum. According to reports, four prominent remainer Conservative MPs are involved in talks with Corbyn.
Sterling technical are covered in a different section but the chart below shows a familiar pattern. Since late-April there have been three occasions when moves lower are met with a quick reversal before the overall bearish pattern takes over. Will the current move prove to be the fourth occasion?
GBPUSD Daily Chart (December 2018 – August 16, 2019)
Crude Oil Price Outlook Bearish, Eyeing January Lows on Long Bets
Crude Oil Technical Forecast: Bearish
- Crude oil prices struggled sustaining upside momentum this past week
- Technical signals on the daily, 4-hour chart hinting at weakness ahead
- IG Client Sentiment offering stronger bearish crude oil contrarian bias
Build confidence in your own Crude Oil trading strategy with the help of our free guide!
Crude Oil Technical Outlook
Crude oil prices struggled to sustain upside momentum this past week as US recession fears plagued risk trends and the sentiment-linked commodity. From a technical standpoint, this falls in line with oil’s dominant downtrend since the middle of April when the commodity fell through rising support from the end of last year.
Looking at the oil daily chart, gains during the front-end of the past 5 trading days were tamed by a falling channel of resistance going back to the middle of July (parallel red lines below). Horizontal resistance also held at 57.38, former highs from February. This left crude oil sitting just above the lower boundary of psychological support which is a range between 54.55 and 55.41.
If descending resistance continues to define near-term price action in the commodity, we may see crude oil extend weakness down the road. Prices may eventually end up at the next critical psychological area between 50.41 and 52.08. This range held as support on multiple occasions such as in June and back in January. Meanwhile, near-term technical signals also hint towards downtrend resumption.
Crude Oil Daily Chart
Crude Oil Chart Created in TradingView
Zooming in on the crude oil 4-hour chart below, rising support from August 7 was taken out this past week. As such, a close under 54.55 may pave the way for continued declines. Otherwise, the upside challenge for the commodity is taking out descending resistance from the middle of July which would expose the July 31 high at 58.79 down the road.
For more updates on crude oil, including fundamental developments, feel free to follow me on Twitter here @ddubrovskyFX.
Crude Oil 4-Hour Chart
Crude Oil Chart Created in TradingView
Crude Oil Sentiment Outlook – Bearish
Meanwhile, IG Client Positioning is offering a stronger crude oil bearish contrarian trading bias. Traders are further net long on August 16 than compared to the prior day. To learn more about how you can use this in our own trading strategy, join me every week on Wednesday’s at 00:00 GMT as I uncover what market positioning has to say about the prevailing trends in financial markets.
Crude Oil IG Client Positioning
FX Trading Resources
— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
Into the Jackson Hole Vortex
Traders shouldn’t be surprised if gold prices spend most of the week trading sideways ahead of the Federal Reserve’s Jackson Hole Economic Policy Symposium.
Weekly Fundamental Gold Price Forecast: Neutral
- Gold prices (as well as other precious metals) continue to outperform in an environment defined by falling real sovereign yields – that is, inflation-adjusted yields remain in negative territory.
- Traders shouldn’t be surprised if gold prices spend most of the week trading sideways ahead of the Federal Reserve’s Jackson Hole Economic Policy Symposium.
- The IG Client Sentiment Index shows that gold prices in USD-terms (XAUUSD) may give back some of their recent gains in the days ahead.
See our long-term forecasts for Gold and other major currencies with the DailyFX Trading Guides.
Gold Prices Week in Review
Gold prices, no matter how you measure them, had another good week. Not one major currency gained ground against gold, with gold prices in EUR-terms (XAUEUR) leading the way higher with a 2.11% rally. Now, gold prices in EUR-terms (XAUEUR) are quickly approaching the all-time high established in October 2016; for many of the gold-crosses, fresh all-time highs have already been achieved (gold prices in AUD-terms (XAUAUD), gold prices in GBP-terms (XAUGBP), and gold prices in NZD-terms (XAUNZD) come to mind).
But the central focus of most market participants is gold prices in USD-terms (XAUUSD), and that too produced another strong week, adding 1.11%. Gold prices, regardless of the currency basis, have been on a strong run higher in recent weeks in part to the global monetary response to the US-China trade war; we’ll get clarification on the state of global easing this week as central bankers from around the world descend on Jackson Hole, Wyoming for the Federal Reserve’s annual Economic Policy Symposium.
Global Trade War Concerns Keep Gold Prices Elevated
Despite improved trading conditions for global equity markets in recent weeks, not much has changed in a positive manner along the US-led trade war front. Sure, there is a détente in the US-China trade war after the US tariffs at a clip of 10% on $300 billion of imported Chinese goods were pushed back from September 1 to December 15.
Yet there is a strong argument to be made with central banks unveiling more accommodative, dovish policy in recent weeks – a trend that is expected to continue – the fundamental backdrop for gold prices remains bullish in the long-term horizon. Falling sovereign bond yields (particularly German Bunds, UK Gilts, and US Treasuries since the start of May) continue to drop lower, and as a result inflation-adjusted yields remain in negative territory – good news for precious metals.
Volatility Tamped Down Ahead of Fed’s Jackson Hole Meeting
The Fed’s Jackson Hole Economic Policy Symposium this coming week should keep volatility tamped down in the days ahead. Traders typically don’t like to stake out significant positions ahead of the Fed’s annual summit; indeed, at the end of August, many trading desks have been left absent for summer vacation.
Beyond the prospect of an unforeseen development (see: US President Trump’s tweets) in the US-China trade war, the week leading into the Fed’s Jackson Hole Economic Policy Symposium is likely to be a quieter one – even if there are several significant pieces of data set to be released.
Other Top FX Events in Week Ahead
Early in the week, on Tuesday, gold prices in AUD-terms (XAUAUD) will be in focus with the release of the Reserve Bank of Australia’s August meeting minutes. Gold prices in AUD-terms (XAUAUD) are holding near their all-time highs ahead of the minutes. Elsewhere, the commodity currencies will remain in focus with the release of the July Canada inflation report on Wednesday, drawing attention to gold prices in CAD-terms (XAUCAD).
Elsewhere, gold prices in EUR-terms will come into focus with the release of the August Eurozone PMIs, particularly as odds for more easing from the European Central Bank at their September policy meeting have crept higher in recent weeks.
Net-Long Gold Futures Positioning Just Off the Yearly High
Finally, looking at positioning, according to the CFTC’s COT for the week ended August 13, speculators decreased their net-long gold futures positions to 290.1K contracts, down slightly from the 292.6K net-long contracts held in the week prior. The market is still the most net-long since September 2016 despite the slight moderation in bullish positioning.
FX TRADING RESOURCES
Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at email@example.com
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