Big week for the US
It’s a very quiet start to an otherwise hectic week, with markets everywhere looking a little flat as we await a barrage of newsflow in the coming days.
Source – Thomson Reuters Eikon
Naturally, the Fed is front and centre, which is hardly surprising when you consider they’re basically keeping the markets afloat single handed at the moment. A rate cut is fully priced in this week but with 50 basis points still somehow 18% priced in, unless Powell gets his communication spot on, markets could be primed for disappointment.
Of course, with a third of the S&P 500 and quarter of the Dow reporting earnings, US/China trade talks restarting in Shanghai and the jobs report coming on Friday, traders are not short of other things to focus on. That said, expectations for talks are quite low, earnings season is going well against a backdrop of an earnings recession, low expectations and a slowing economy, and the jobs report has simply fallen down the pecking order for now.
It also never helps that weeks like this have very little to offer on the opening day, meaning traders are left to position themselves ahead of a hectic period which, as we’re seeing, often leaves them a little flat across the board.
Gold resilient as central banks prepare the taps
With this in mind, two instruments that traders will be paying huge attention to this week are the dollar index and gold. Both are a little flat in early trade which may continue into the Fed decision on Wednesday. The dollar has rebounded strongly off its lows this month to trade back near its highs. This may be a reflection of US data not being as bad as it was and the Fed being less dovish, particularly on this meeting, than markets but probably also largely reflects other currencies getting hit hard for a variety of reasons, most notably the euro and pound.
Gold has been relatively resilient to the dollar’s gains but this is likely being strongly aided by central banks becoming much more dovish, with the ECB last week admitting its exploring various options including more QE. This has previously been very beneficial for gold and could be particularly so in this period of negative interest rates. Key levels to the downside for gold are $1,400 and then $1,380.
Gold Daily Chart
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Oil stable after free pass last week
Oil is relatively stable on Monday and has been becoming increasingly so since early last week. Large drawdowns were given a relatively free pass last week due to the effects of Tropical Storm Barry, despite being one of a number of inventory declines in recent weeks. Clearly other factors are also carrying a heavy weight, including the economic output and constant warnings about falling demand growth from various agencies.
Brent Daily Chart
Bitcoin looking vulnerable as it clings on to $9,000
Bitcoin is not as in the headlines as it was a couple of weeks ago and price is struggling as a result, hanging in there between 9,000 and 10,000 but looking vulnerable to further declines after a strong late spring/ early summer rally. It’s back in the red so far today and has already come close to testing $9,000 today but is so far clinging on. We need to see a break and hold back above $10,000 now to restore confidence for bulls in the near-term.
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Craig Erlam
His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.
Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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