Winning streak at risk but optimism returning

Markets pare gains but outlook brighter

Equity markets around the globe are in negative territory on Thursday, with the US seen following suit, but that’s nothing to be concerned about with the drop coming after a good run of gains across stock markets.

It’s been an impressive rebound over the last week or so, made all the more encouraging by the fact that it’s been supported by some genuine positive headlines. While specifics are lacking, talks between the US and China appear to be going well, as the Chinese foreign ministry confirmed on Thursday. This is very good news for investors as it represents one of the primary risks for markets.

Other risks remain – such as the government shutdown in the US, the soap opera that is Brexit and global growth, to name just a few – but this list is significantly reduced compared to a month ago. And the first two of these are more likely to lead a positive conclusion than not over the next few months, turning them from headwinds to tailwinds for markets.

Markets pause for breath after Fed minutes

Still reason for caution but optimism is growing

Caution isn’t going anywhere though because in much the same way that a number of these could become tailwinds in the coming months, they could also go disastrously wrong so markets will remain vulnerable. The Fed has at least for now, gone some way to reassuring investors that it is listening and has no intention of being the cause of recession by hiking rates too quickly.

All of these developments may have been positive for wider market sentiment but it’s playing havoc with the dollar. The commentary from Fed officials, consistent with the minutes on Wednesday, have become far more dovish which is a relief for those worrying about a Fed-led recession but weighs on the greenback. The same is true of the positive progress in talks between the US and China, the dollar benefited during periods of escalation and the opposite is true now.

Dollar loses its luster, more to come

Gold pushing $1,300 and looks increasingly likely to break

This continues to be supportive for gold which now finds itself pushing $1,300 again and increasingly likely to break above. It failed to do so again overnight and the dollar paring its losses has seen it lose its edge again today but I think this will only be temporary. Risk appetite improving may slow the ascent but I don’t think it will prevent it as long as the dollar remains soft, as expected.

Gold Daily Chart

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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.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.