EUR/USD finds support after Fed’s Harker suggests rate hikes might be over

• Fed rate hike odds stumble (Sept at 13.0% of a hike, November at 20.2%)
• Fed’s Harker will may be at a point where it can hold rates steady
• Fed’s Barkin notes inflation remains too high

Risk aversion was providing the dollar with some momentum but that move might have been exhausted after Fed’s Harker signaled they could be done raising rates.  Harker noted, “Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.” In early June, Harker noted that the Fed is ‘close to’ the point where it can hold rates.  He has not made many appearances this summer, but he has remained consistent.  The dollar rally cooled after Harker, but it picked up again after Fed’s Barkin said the US economy remains strong, providing optimism in the face of recession calls. Barkin stayed hawkish and emphasized the resilience of the economy and that inflation remains too high.

Overnight, both US stocks were lower, while the dollar rallied as the global macro backdrop just got very gloomy.  It started with disappointing Chinese trade data, then Moody’s cut the credit rating for 10 small and midsize banks, and then UPS lowered their guidance on weakening demand and higher costs from a new labor contract. Safe-havens are rallying, but it is not too ugly as Wall Street is starting to become very confident that global economic weakness will do the trick in getting inflation back to the Fed’s 2% target.  Rate hike odds continue to edge lower for the September and November FOMC meetings, but the rate cuts for 2024 keep growing.

EUR/USD

The euro stumbled after disappointing Chinese trade data reignited global growth concerns. China is a key trading partner for the eurozone, which means their current struggles will weigh on the euro.  The current two-week slide tentatively is respecting key support from a trendline that started last September.  If bearishness resumes, downward momentum could target the 1.0825 region.  To the upside, 1.1125 remains key resistance.

Strong dollar crushes commodities across the board

Oil

Crude prices tumbled as risk aversion runs wild on abysmal China trade data and as US banking worries percolate.  A strong dollar roared back, as global growth concerns dragged down all commodities. For energy traders, this was an easy sell last night as China’s crude imports hit the weakest levels since January.  Adding to the bearishness was the 34% plunge of India’s oil imports from Saudi Arabia.

The oil market was supposed to easily remain tight throughout the rest of the year, but that was based on a steadily improving economic recovery from China.  WTI crude has had a nice run up since late June, so profit-taking could become more aggressive if prices fall below the $80 level.

Gold

Gold is trying to act like a safe-haven again.  Gold is slightly lower on disappointing Chinese trade data, pressure with the US banks, and mixed earnings. Despite broad dollar strength, gold is holding nicely considering all the selling that is hitting the other commodities.  If the global economic outlook deteriorates further, gold should catch a bid here.  Gold has major support around the $1950 level, with upside resistance residing at the $1992 level.  If gold breaks below $1950, it could get ugly fast until the $1935 region.

Bitcoin

Bitcoin appears to be lifeless despite several market moving headlines.  Risk aversion from weakening global growth concerns is not dragging Bitcoin down. Perhaps some traders remain upbeat, especially after PayPal launched a US dollar-backed stablecoin.  Bitcoin seems content hanging around the $29,000 level until we get a meaningful regulatory update.

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