Overreaction to US retail sales?

Futures recover after weak spending figures

US futures are looking a little soft ahead of the open on Wall Street, although they are recovering as we approach the open, with sentiment appearing to have taken a small hit from the surprisingly weak retail sales data on Thursday.

I always find it a little strange when traders overreact to single economic releases and think that there’s likely more behind the move, even if this appears to be the catalyst. The markets have been on a very good run this year and I think it’s natural that we’re maybe seeing some profit taking.

We’re still around 5% off the highs prior to the sell-off in the fourth quarter but compared to where we were around Christmas, that’s a positive not a negative. We’re seeing progress in trade talks between the US and China, another shutdown has been averted and the Fed has become considerably less hawkish. I don’t see reason to panic over one piece of bad data. Of course, people will now be more vigilant though, looking for further signs that all is not well on main street and it appears on Wall Street.

USD stalls and gold capitalises on weakness

The data on Thursday has clearly taken some of the spark out of the US dollar rally, a rally that prior to Thursday had suffered only one losing day in 10. Today the dollar is back trading in the green but only marginally. The dollar faces numerous headwinds now, including extra scrutiny of the data, a more dovish Fed and, of course, the trade talks between Washington and Beijing.

Gold Daily Chart

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As we’ve seen on numerous occasions recently, gold was not so much dragged lower by the dollar rally but it did consolidate. As soon as the dollar displayed some weakness though, the yellow metal was on the rise again, finding itself back at the top end of the $1,300/$1,320 range. Gold bulls must feel very encouraged by this response having failed to see a real test of $1,300 throughout a challenging 10-day period.

DAX jumps as investors remain hopeful on US-China trade rift

Oil bulls getting excited?

Gold isn’t the only commodity that capitalised on the weaker dollar, with oil also seizing the opportunity to drive towards previous peaks and an area that could once again offer strong resistance. WTI crude is facing significant potential resistance around $55, a break of which could be the catalyst for a substantial move higher.

There’s a very mixed picture for oil on the fundamentals side, with record US output, slower global growth expectations and question marks around Russian compliance with the output cut acting as a major barrier to the upside for prices. The flipside of that though is the falling US oil rig numbers, commitment by OPEC+ to cut – which has been successful in the past – and Saudi Arabia’s commitment to go further and cut an extra 500,000 barrels. On top of that, risk appetite has been on the mend, which is supportive for prices. I guess we’ll see shortly which side the broader market is on.

Economic Calendar

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Former Craig

Former Craig

Former 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 SKY News. 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.