Looking for the elusive silver lining.

  • Markets
  • Oil
  • Gold
  • G-10
  • EM FX Asia
  • Bitcoin


U.S. stocks fell for a fifth straight day as investors remain bewildered by the political ping-pong match around Brexit.More questions about NAFTA 2. While trade jitter has everyone on edge as the doomy global economic growth narrative continues to take root. Other than the carnage in Crude temporarily decreasing, there’s not much of a silver lining to be had as we enter today’s Asia session with the S &P 500 falling to 2-week lows.

Oil Markets

And when you thought a dose of OPEC verbal intervention could “right the oil tanker”, today’s API inventory build will provide yet another blow to Oil prices as the extraordinary momentum of US supply growth continues to amaze. I don’t think the build is too much of a surprise as no one was factoring in much support from US inventories, but this data continues to reinforce the significance of “The Made in America Factor.” weighing on Oil prices.

US shale producers are equally responsible for global oversupply. The latest data show producers running at an accelerating pace, placing the US as the largest oil producer in the world. As well, President Trumps stinging OPEC tweets have legs. The US administration caught OPEC  wrong-footed by what was supposed to be the harshest sanction ever applied to Iran only for the US to take relatively mild action exacerbating the supply glut. And then US tariffs are compounding China’s economic woes and are fanning exaggerated concerns about demand growth in 2019 and 2020. Indeed, the Washington “quadfecta” is having a massive impact on prices,

But we need to play the cards dealt and as such the desynchronization of global GDP’s between EM markets (including China) and the US suggest that US dollar strength which has triggered Asia EM FX depreciation could continue acts as a demand drag on Asia largest Oil importers.

Early in the NY session, OPEC verbal intervention saw prices bounce off weekly lows as speculation built that OPEC + would cut output at next months triggering crisp profit taking from arguably oversold conditions. But a 2 % pullback after a 7 % drop suggests there is still a lot of apprehensions out here, supply glut concerns notwithstanding.

While it’s little more than a mug’s game to pick bottoms, but we are undoubtedly much closer to pricing in the current supply glut and reduced forward demand factors than we were on Monday. But the toxic elixir of weakening global demand and oversupply suggests upticks will run into substantial selling as numerous bearish factors are weighing on sentiment.

In short, sound OPEC output, the surge in US production, a strong US$ weighing EM product demand, and Iran sanctions waivers, have for now put a damper on crude oil prices triggering a massive flight from long-only funds while placing markets in a disadvantageous yield contango effect.

If your looking for a bullish tail risk in the absence of a significant production cut, including compliance from Russia, pray for an extended winter cold snap across the global or unexpected supply disruption.

Gold markets

The DXY failed another test of 97.75, and the CPI data did little to influence USD demand. Risk aversion continues to rear its ugly head dampening US equity sentiment. But the combination of weary USD and the markets risk off tendencies triggered a wave bargain hunting then profit taking on tow which provided a significant fillip for gold prices as the market sliced through stop losses like a hot knife through butter.

G-10 Currency Markets

After putting in a bottom near 1.1200, the USD has seen some rather acute selling the past 24 hours or so. Everyone is pointing to the Pound as the catalyst, but frankly, I’m not sure this is a compelling enough argument and Euro still looks incredibly shaky.

But there are more than a few flies gathering in the bullish US ointments, so we could see some more sizeable long dollar bets reduce across the G-10 spectrum.

Yuan and Aussie
A slight de-escalation in US-Sino tensions have seen long USDCNH bets pare and the Aussie regain composure. And we could see both the CNH and AUD sentiment improve as we near G20.

Mind Set
If traders start thinking, markets are entering a protracted consolidation phase; they will begin to throw in the towel on the long USD trade while preserving year-end profits

December rate hike effect
Fully priced into the calculus is the December FOMC, suggesting the hawkish Fed narrative may have run its course, so the USD could be driven by external factors over the near which turns things into a bit of crapshoot

Japanese Yen
ON the Japanese Yen, I think the weaker USD across the board opens the real potential for Yen to appreciate. Equity underperformance, an anticipated BoJ taper in 2019 and word on the street suggesting increased Japanese exporter hedging demand into year-end. It does support a stronger JPY into year end.

EM Asia FX

IDR and INR are catching a tailwind on cratering oil prices while the RMB complex remains relatively stable, but there seems no escaping this global risk aversion theme which will continue to temper expectation on both local equity and currency markets. It all suggests that we will continue to trade on different topics with the North Asia block struggling on a weaker equity outlook.

Malaysian Ringgit

The weaker bias remains in check as cratering oil prices now weigh negatively on the government coffers. Tomorrow’s expected rebound in GDP due the 0 GST consumption effect is priced into the currency equation. Importers are reportedly on the bid in the low 4.19 level while locals have good USD supply on offer ahead of 4.20. For today I expect the USDMYR to trade lockstep with regional peers.


Bye, Bye Bitty? Bitcoin just crashed below significant support levels which have held up since April as the Bitcoin Cash hard fork is proving far more destabilising than initially thought as numerous competing factions muddy the landscape. All of this noise is triggering a “when in doubt get out” cause and effect. My long-held belief is that the eventual break of $5000 opens the door to a test of $2500  as Bitcoin retail traders move from buying on dip to full out panic mode.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes