Dollar watch is on
Onwards and Upwards
The US stock markets rose overnight as investors, at least for today have put trade fears in check, as the US tech sector beckons and roars. While markets remain unsure if we’re in the calm after the storm, the lull between storms or even in the eye of the hurricane, but there’s certainly a pattern forming that while equity markets quiver during the trade dispute, stocks come roaring back with FAANG (Facebook, Apple Amazon, Netflix and Google) consistently leading the charge. Despite the huge question mark over global trade, Wall Street quickly returns focus to the US economy and to which there is no denying it is doing exceptionally well. Investors are showing no fear as it’s onwards and upwards for Facebook and Netflix!! Indeed, the five heavyweights remain the undisputed champions of US equity markets!
Despite the bearish overtones ahead of the OPEC meeting, prices have been trying to rally after the most significant weekly drop in inventories since January. But as we’re less than a day away from one of the most anticipated and focused on OPEC and non-OPEC meeting in years, the market is still in search of some semblance of clarity. While clarity brings power, but I suspect it will also bring waves of volatility as we’re indeed headed for some collision given the different takes, positioning and flat-out guesses heading into the meeting. While playing the edges of the well-worn ranges on the build-up to OPEC did prove to be a predictably good trade, but it’s time to strap in and put on your trading caps, as Monday’s futures open could be ” banger” of an event.
While Iran continues to put up a fuss about an increase, there appears to be an air of confidence that this deal will move through. Of course, much of Iran’s consternations are as much political in nature as they are economical, suggesting a compromise will be forthcoming.
Despite the market’s bearish lean, I remain bullish on oil expecting a production rise towards the lower end of the perceived range while global demand, particularly in Asia will continue to soar. But make no mistake this oil trade remains exceptionally vulnerable to OPEC.
Finally, based on overnight price action, it’s probably a foreshadowing of things to come over the next 24 -48 hours. As anticipation reeves up for the Vienna summit, crude oil prices will become highly reactive to any headlines. If you like “chop fest”, this will be the market for you but be forewarned, it could be a bumpy ride.
With equity markets and the USD on the ups, gold remains entirely out of favour as precious metal traders took note of Fed Chair Powell reiterating his hawkish monetary policy stance. With trade war fears ebbing yet again, gold investors are finding little support from escalating geopolitical tensions.
We saw some new buying on the dip below $1270, but it appears to be hot money looking to flip on a bounce back to $1275. But with the current momentum clearly to the downside, in this bullish US dollar climate, upticks will continue to be sold.
As for the USD dollar signals, I’m not sure if this comes from the fact I cut my trading chops on Bay street trading $/ CAD. But the loonie is s providing some definitive signals for the ” big” dollar momentum, so in my view, any move to and above USDCAD 1.3350 could see a considerable extension lower on gold prices. Indeed, buyer beware in this dollar bull environment.
As noted in yesterday afternoon update, it feels like we’re moving back to the differential theme, but the big question is, why isn’t the Euro lower!!
EUR: Entering the week, an extension lower was always going to be a data-dependent trade, and despite the test of 1.1535 there has been a fair amount of profit taking on the short EUR trades this week, but this could be falsely predicated on fears of a crowded trade. I don’t believe this is the case, and I think it’s the lack of tier one US economic data has traders erring on the side of caution as no one what to be short in the low 1.1500 in the event of a data surprise or another ECB flip-flop.
The Euro has been served up on a silver platter two way’s (Dove ECB Hawk FED), yet traders are s reluctant to engage shorts below 1.1550-75 levels. A bit of a head-scratcher but there it is none the less.
AUD: A clear path lower? Traders are merely biding time holding shorts awaiting the next wave rhetoric/escalation out of the US and China which will most certainly happen. Besides the Aussie sensitivity to lower commodity prices, there’s that no less important issue of extreme RBA dovishness that continues to hang like an anvil around the AUD neck.
JPY: The long USDJPY is such a temptress, but with the constant stream of risk blow ups, it remains the dollar of least interest on my horizon.
MYR: USDMYR trading above 4.01 was both a surprise and proved to be an excellent near-term entry point. But my view on the MYR and local assets, in general, is on the expectation that we could be on for a long-term battle of attrition. While remaining entirely neutral on the MYR, it’s hard to ignore opportunistic moves especially if you’re sitting in the bullish oil camp, Brent moving back toward $80 could be a real cure-all for all that ails the Ringgit. So, let’s see what surprises OPEC has on offer, fingers crossed for the MYR.
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