Thin trade is the best way to describe this morning, but traders must not forget today is quadruple witching. The dollar and gold prices are steady, oil is slightly higher, and global bond yields are little changed. As much as the market wants to feel the Fed has a strong handle in stabilizing the funding markets, we ae seeing this spectacle of liquidity stress weigh on Treasury auctions. Today’s $75 billion injection mirrored what the Fed did on both Wednesday and Thursday. The Fed was hopeful the IOER cut would also deliver some relief, but that temporary fix is doing little to ease money-market stress. We will see a permanent fix eventually, but will they wait till the October meeting.
We heard from a couple of dissenters, Bullard, the uber-dove reiterated he wanted to cut rates by an additional 25 bps and Rosengren, a hawk who wanted to keep rates steady and stood by his belief that current policy is accommodative.
Brent crude is likely to have the best weekly gain since January but will close far from the highs made at the start of the week. Oil should remain supported on geopolitical risks, especially as we will likely start to calculated Saudi-led coalition military attacks. Iran does not want to go to war, but energy markets will not being ruling this risk out.
Hurricane season also remains in focus, but right now the latest threat, Jerry is still expected to move north and not pose much of risk to energy markets.
West Texas Intermedia crude’s tentative breakout of the tight three-month $50-60 range seems like it will hold up for now. Global demand concerns will likely prevent any rallies from getting out of control, but if we see a major escalation over the weekend, we could easily a run towards the $64 a barrel.
Gold prices seem directionless as we are not seeing any market moving headlines on trade, anything new from the Fed’s Bullard or Rosengren, both who dissented at this week’s policy decision and after the Fed injected cash for a fourth consecutive day. It seems the laundry list of catalysts to hold safe-havens keeps getting longer. Gold bullish momentum is going through some exhaustion now, but it seems we are one or two headlines away for it to regain its mojo.
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