Europe update – ECB, US, USD, Gold, Oil, Bitcoin

US GDP to see us out this week

It seems the heat isn’t the only thing that’s taken it out of investors on the final day of the week as markets show signs of fatigue following a busy few days.

Source – Thomson Reuters Eikon

The killer blow came from Mario Draghi on Thursday who wasn’t his usual dovish self, or more accurately, failed to live up to the high level of expectation that the market has set. I fear this is going to be a recurring theme as central banks try to appease markets while at the same time trying not to be pushed into easing at a faster rate than they’re comfortable with.

Investors appear to have got this impression yesterday as well, with there being plenty of suggestions that we could see a repeat from the Fed next Wednesday. Investors have been very stubborn with the Fed and refuse to accept what is right in front of them. There have been repeated efforts to pare back expectations but they’re still falling on deaf ears a little, with markets pricing in an 18% chance of a 50 basis point cut.

US Fed Interest Rate Probabilities

Source – Thomson Reuters Eikon

This number could rise as well today if we get a bad second quarter GDP reading. It seems investors are quite pleased to see weaker data at the moment as it further builds the case for aggressive rate cutting. I can’t see today’s GDP release changing much though, unless it’s a really shocking number, for example one that opens up the possibility of recession in three months time.

Central banks building a bullish case for gold

It’s clear that traders will be paying close attention to the GDP release today and that means we could see some big moves in the dollar, especially if we see a decent miss or beat given how jittery traders are at the moment. The dollar has recovered strongly recently as traders have pared back expectations but that could change quickly, traders are all too keen for more cuts.

This has taken some of the shine off gold but it hasn’t fallen too far which suggests there’s more at play here than just the dollar. With central banks around the world exploring additional easing and the ECB looking at bond buying again, gold is becoming increasingly attractive compared to the growing list of debt yielding negative returns. It came as low as $1,410 yesterday but has once again found support at a higher level than it did previously, possibly a bullish signal for the yellow metal.

Gold Daily Chart

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Oil steady even as news keeps flowing

Oil looks a little lost at the moment as it continues to hover around the mid-point of the range it’s traded in since early June. There’s no shortage of factors driving price at the moment, be it downbeat global growth outlook, record US output, tensions in the Persian Gulf, outages in the Gulf of Mexico to name just a few. But all of this has contributed to the stagnation rather than spur volatility with traders perhaps thinking everything is now reasonably priced in.

Brent Daily Chart

Bitcoin taking a break after weeks of intense scrutiny

Bitcoin is trading back below $10,000 after settling down a little over the last week or so. Cryptocurrencies have been very much back in the headlines in recent months and bitcoin has definitely been one of the big winners of this. It’s also come under increased scrutiny from officials that are quite hostile to the prospect of something that aims to usurp the US dollar. It’s been much quieter over the last week though which has brought a little calm back to price action. I doubt that will last.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. 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 BNN. 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.
Craig Erlam