- CAD rallies on NAFTA and sends Gold higher as the dollar falls away below key support.
- WTI rallies and takes the CAD higher, adding fuel to the risk-on play.
- All eyes are on US CPI while PPI was a miss – markets looking for signals that the Fed will remain hawkish into 2019, supporting the greenback.
Gold is picking up a bid on the market morphing into a risk-on environment after headlines that the US is going to seek trade talks again with China (inevitable, so likely to run out of steam) as well as positive NAFTA headlines. Gold has rallied from $1,196 up to a high of $1,204 but is starting to decline from there as bulls run out of steam on the scramble to risk.
CAD rallies on NAFTA
We might see some profit taking at this juncture as key pairs hit key levels and pause for a re-think. USD/CAD has lead the way having dropped below the 1.130 handle for a low of 1.2985 so far, (currently trading at 1.12993). The pair dropped yesterday on positive NAFTA headlines that progress was being made towards a dad line by end of Sep. Today, we got comments from Guajardo, (Mexican Economy Minister ), who sees a ‘high chance’ of a US-Canada trade deal – he said that Kenneth Smith Ramos, (the Mexican NAFTA negotiator), is in fact on his way to DC.
WTI rallies and takes the CAD higher, adding fuel to the risk on play
At the same time, WTI rallied to $70.95 – a move that started yesterday after reports of Hurricane Florence as a Category 4 hurricane was barreling toward the Carolinas and an as-yet-unnamed storm, likely to develop into a tropical depression, and Tropical Storm Isaac also potentially headed into the Gulf of Mexico, where oil production and refinery facilities are located. At the same time, there are the worries that U.S. sanctions on Iran will hurt global oil supplies. The EIA also cut its crude output forecast – In a monthly report issued Tuesday, the Energy Information Administration said that Iranian crude production was down 200,000 barrels a day in August compared with July. The government agency also raised average price forecasts for WTI and Brent, and lowered its U.S. crude output expectations, for 2018 and 2019. just today, we had the EIA reporting that the US crude oil supplies dropped more than initially forecasted by 5.296 mbpd during last week.
Markets focused on CPI risks
From the data front, US PPI was a miss ahead of the more important CPI data – analysts at TD Securities expect the data to come in line with expectations but have warned that the dollar tends to weaken off on CPI days. However, a surprise to the upside would likely reinforce a more hawkish Fed in 2019 and support the greenback – “A firmer CPI print should help reinforce expectations of rising wage pressures and could nudge 2019 Fed rate hike pricing higher.”
DXY break below key support level, but Beige Book ahead of CPI may support
Meanwhile, the DXY is currently trading at 94.88 and below the psychological 95 handle on these moves today – there was alow of 94.75 for the day’s high of 95.28 and technically, DXY is on the back foot having made daily lows in a bearish candlestick formation with a break of the key 94.90 support.
We have the Beige Book next which is bound to paint a rosy outlook for the economy which should support the dollar on the wider outlook, but its immediate fate will depend on the CPI data tomorrow and a miss there could certainly open up the downside before the FOMC and further encouraging headlines from NAFTA or indeed US/China will likely fuel an unwind and lift MEs.
EM risks
Similarly, Brexit and Turkey headlines are less negative for the meantime while the Central Bank is seen raising rates this month and the Turkish lira is the best performing currency so far this week – the CBRT will announce its decision on Thursday. FX traders should be watching for a bottom in the H&S in EUR/USD and Gold will likely catch a bid on dollar weakness.
“While emerging currencies remain under pressure due to prevailing concerns about global trade tensions, the Turkish lira is the best performing currency so far this week. The recovery of the severely battered lira, which lost more than 40% of its value this year, is driven by market expectations that the central bank may raise interest rates in response to rising inflationary pressures and the risk of financial instability”‹”‹”
– analysts at Rabobank explained.
Gold levels
Mohammed Isah at FXTechstrategy explained that on the downside, support comes in at the 1,190.00 level where a break will turn attention to the 1,180.00 level:
“Further down, a cut through here will open the door for a move lower towards the 1,170.00 level. Below here if seen could trigger further downside pressure targeting the 1,160.00 level.”
Conversely, on the flip side, Mohammed Isah explained that key resistance resides at the 1,200.00 level where a break will aim at the 1,210.00 level:
“A turn above there will expose the 1,220.00 level. Further out, resistance stands at the 1,230.00 level. All in all, GOLD looks to strengthen further higher.”
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