Articles

• US August prelim UMich consumer sentiment 67.8 vs 66.9 expected
• US July housing starts 1.238M vs 1.330M expected
• China issues new gold import quotas after pause — report
• Fed’s Goolsbee: There are some things that are flashing yellow
• July Canada housing starts 279.5K vs 245.0K
• Canada June manufacturing sales -2.1% vs -2.6% expected
• Baker Hughes US oil rig count -2
• Israeli intel believes Iran response will take place at later date — report
• Biden says Gaza ceasefire deal ‘is closer than three days ago’
• Blinken to visit Middle East starting on Sunday
• Join me on Monday for a webinar on how to dodge 7 common trading traps

Markets:

• Gold up $51 to $2507
• WTI crude oil down $1.46 to $76.70
• US 10-year yields down 4.3 bps to 3.88%
• S&P 500 up 0.2%
• JPY leads, USD lags

The US dollar was broadly weak on Friday in a move that was challenging to explain. The entire USD/JPY rally from Thursday and the positive retail sales data was wiped out while other pairs continued to climb. The later was backed by a decent risk tone and modest decline in Treasury yields but it was an outsized move that was tough to pin down.

One spot I look at is ongoing de-risking. Some of those caught up in the August rout or carry trade unwind may still be looking to de-risk.

The moves were large with the euro closing above 1.10 for the first time since January and cable adding nearly a full cent in a breakout from the weekly range. The Australian dollar rode and improving risk trade to the best levels since July 22 as that rout continues to be erased across asset classes.

The big winner on the day though was gold as it hit an all-time high and broke $2500 for the first time. On the initial touch of $2500, there was some profit taking and a quick $20 drop but the bulls reorganized and bid right through the close. The catalyst was likely a report that Chinese banks have been given fresh buying quotas, along with the widespread USD weakness.

Overall though, it was a day that left us scratching our heads and early next week is likely to do the same with a very quiet economic calendar until Jackson Hole kicks off on Thursday.

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

US stock markets started lower today but found a footing early and slowly climbed the hill. Overall volatility was lower than it’s been and newsflow was light but the bulls should be encouraged by another positive close, led by smaller caps today.

On the day:

• S&P 500 +0.2%
• Nasdaq Comp +0.2%
• DJIA +0.2%
• Russell 2000 +0.35%
• Toronto TSX Comp flat

On the week:

• S&P 500 +3.9%
• Nasdaq Comp +5.3%
• DJIA +2.9%
• Russell 2000 +2.9%
• Toronto TSX Comp +3.3% (best weekly close ever)

The weekly gain in the S&P 500 and Nasdaq was the largest since last October.

This article was written by Adam Button at www.forexlive.com.

HSBC analyzes the factors behind GBP’s strong performance in 2024 and discusses the potential challenges ahead. While the currency has been resilient due to its high carry, HSBC warns that the outlook may not remain as favorable, especially with expected further rate cuts by the Bank of England (BoE).

Key Points:

• GBP’s Strength in 2024:

  • GBP has been the most resilient G10 currency this year, largely due to its high carry.
  • CFTC data shows long GBP positions are near all-time highs, highlighting the currency’s attractiveness to investors.

• BoE’s August Rate Cut:

  • HSBC notes that the BoE’s rate cut in August should not be overlooked, even though the central bank has maintained a cautious stance on easing.
  • The UK’s lackluster growth outlook suggests further easing is likely, with HSBC expecting another 25bp rate cut in November.

• Structural Challenges:

  • The UK’s current account deficit is primarily financed by “other investment” flows, linked to the carry inflows supporting GBP this year.
  • As the carry buffer narrows, HSBC anticipates that GBP may start to weaken against the USD in the coming months.

Conclusion:

While GBP has shown remarkable resilience in 2024 due to high carry, HSBC foresees potential challenges ahead. The BoE’s continued rate cuts, coupled with the narrowing carry advantage, may lead to a decline in GBP’s strength, with targets of GBP/USD at 1.26 by the end of Q3 and 1.25 by the end of Q4.

For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.

This article was written by Adam Button at www.forexlive.com.

The recent rally in the euro hasn’t gotten much attention because there isn’t a great fundamental backing behind it. Europe’s economy continues to struggle and the move is mostly about broader US dollar selling. That said, sometimes the technicals lead the fundamentals and the poor economy in Europe is priced in at this point while a US slowdown would be a surprise.

The pair is also beaten-down in the longer term from the 1.15-ish pre-pandemic space.

I find it hard to chase anything in Europe but there are a nice series of higher lows and it would be easy enough to squeeze the shorts, at least up to 1.12. I don’t see much of a catalyst in the week ahead though.

This article was written by Adam Button at www.forexlive.com.

We started the week at 2.9% and finish at 2.0%.

I would be worried about that if we were anywhere close to Q3 GDP numbers but the prelim estimate is still months away and vol early in the cycle is normal.

“After this morning’s housing starts report from the US Census Bureau,
the nowcast of third-quarter real gross private domestic investment
growth decreased from 0.0 percent to -2.4 percent,” the Atlanta Fed reported.

This article was written by Adam Button at www.forexlive.com.

The US dollar is under broad pressure as risk trades improve and we tick towards the weekend. Earlier, Treasury yields were low and that that should have weighed on the dollar but didn’t.

AUD/USD has rose to the highest since July 21 in the latest leg.

This article was written by Adam Button at www.forexlive.com.

• Oil rigs -2 to 483
• Gas rigs +1 to 98

WTI crude oil was last down $1.60 to $76.49.

This article was written by Adam Button at www.forexlive.com.

Israeli intelligence now assesses that Hezbollah and Iran have lowered the level of alertness in their rocket and missile units and that the response will take place at a later date, according to five Israeli officials, cited by the New York Times.

“By Friday, Israeli intelligence had assessed that Hezbollah and Iran had lowered the level of alertness in their rocket and missile units, according to five Israeli officials. Israel now believes the Iranian-led response – already apparently delayed several times – will take place at a later date, the officials said. The officials have cautioned that their assessments are rapidly changing given the fluidity of events. Intelligence has been sparse and changes frequently, and Iran and Hezbollah are known to be constantly assessing the situation.”

Report here.

This article was written by Adam Button at www.forexlive.com.

US President Joe Biden says “we’re not there yet but we’re closer than three days ago”.

I don’t think many traders are trying to predict the outcome of this but Iran seems to have backed off in its planned attack.

Here is what Israeli geopolitical analyst Michael Horowitz said:

US has put forth a bridging proposal that aims to take into account Israeli demands on Philadelphi and Netzarim corridors, as well as issues on the identity of Palestinian prisoners to be released. My guess is the latter may have seen progress, while the issue of continued Israeli presence along the two corridors is still unresolved (and is now the main obstacle to a deal)

On we go.

This article was written by Adam Button at www.forexlive.com.

On the day:

• Stoxx 600 +0.3%
• German DAX +0.8%
• Francis CAC +0.4%
• UK’s FTSE 100 -0.4%
• Spain’s Ibex +0.6%
• Italy’s FTSE MIB +2.0%

Italy posted some strong outperformance today while the UK struggled.

On the week:

• Stoxx 600 +2.4%
• German DAX +3.4%
• Francis CAC +2.7%
• UK’s FTSE 100 +5.0%
• Spain’s Ibex +2.9%
• Italy’s FTSE MIB +4.0%

The STOXX 600 is up 6.4% from the lows last week and is on a solid winning streak. It would have been particularly bullish to get a close above last week’s opening levels but the bulls will take what they can get.

This article was written by Adam Button at www.forexlive.com.

The rally in gold earlier today may have been underpinned by the issue of new gold import quotas to Chinese banks.

Reuters is now reporting about the new quotas, citing four sources.

“The quotas have been issued but the
local premium to offshore is low so there is no guarantee that the
quotas will be used until things improve,” one of the sources said. “Jewellery demand is still weak but investment demand is healthy.”

Gold touched as high as $2501 — a record — but has since pulled back to $2485.

This article was written by Adam Button at www.forexlive.com.

Goldman Sachs discusses their outlook for USD/JPY, emphasizing the role of US rates and real rate differentials in determining the pair’s future performance.

Key Points:

1. Dominance of US Rates:

   • Return to Fundamentals: Goldman Sachs expects USD/JPY to align more closely with fundamentals, particularly US interest rates, following recent dislocations driven by carry trade unwinds.
   • Constructive US Outlook: With a more optimistic baseline for the US economy, Goldman anticipates a gradual upward trend in USD/JPY, supported by their forecasts for higher equities and a weaker Chinese yuan (CNY).

2. Risk of US Recession:

   • Downside Scenario: Goldman notes that if the US were to enter a recession, their rates strategists predict nominal rates could fall to 3.5-3.75%. In such a scenario, their FX model suggests a potential 5% decline in USD/JPY, with the impact likely to double when factoring in weaker equities and further carry trade unwinds.

3. Real Rate Differentials:

   • Increased Correlation: Goldman expects USD/JPY to become more correlated with real rate differentials moving forward, although they remain cautious about the consistency of this relationship given the recent periods of dislocation.
   • Upside Pressure: Assuming the US avoids recession and carry trades remain attractive (despite expected additional BoJ hikes), Goldman anticipates renewed upside pressure on USD/JPY.

Conclusion:

Goldman Sachs remains cautiously optimistic about the outlook for USD/JPY, expecting it to gradually rise if the US economy remains strong and real rate differentials drive the cross higher. However, they acknowledge significant downside risks in the event of a US recession.

For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.

This article was written by Adam Button at www.forexlive.com.