The Dollar Drift
Capital markets continue to digest various narratives getting pushed in many directions but continue to position on a very short horizon given absolute uncertainties, while US equity markets continue to print fresh record highs to start the week. This despite US 10-year yields firming several pips higher overnight.
The S&P 500 breaking 2900 for the first time confirms yet again another bullish break higher. With the NAFTA breakthrough, carmakers were the big winners. But overall the US-Mexico deal has deflected attention away from Trump’s legal setbacks as investors may see the light at the end of the tunnel hoping that the US-Sino trade dispute can end in an equally friendly manner.
The firming US yields are likely a result, in the absence of any significant news, of positioning and a growing sense that traders have squeezed about as much juice out of this move as possible.
Oil Markets
Oil prices had fallen after the API reported a crude build when the markets were positioned for a draw while bullish bets remain on Iran sanction sentiment swings. Again, global supply concerns continue to act as a foil against bullish positions as the data does suggest higher global supply than anticipated. However, keep in mind API total was still 2.8 million barrels lower than last week’s DOE total and so the expected decline may still be in today’s more definitive report. As such, prices are unlikely to fall off the edge on the API data
Gold Markets
Higher US yields, the S&P pushing above 2900 and general re risking has the gold price precariously perched above the $1200 levels as gold continues to lose its luster once again. The dollar, however, continues to trade mixed but both currency and precious metals traders will be keeping a close eye on the 2.90 % 10-year yield level for some near-term USD guidance. Again, the greenback direction will be key
Currency Markets
Euro
After a 750 pips, round trip the EURUSD is as likely overbought at 1.1700 as it was oversold at 1.1300. And despite the positivity from this week's IFO Expectations index and some conciliatory overtones from Italy regarding EU budget compliance, with the ECB firmly planted on the sidelines, traders were fading above 1.1700 thinking the 1.1750 could prove a tough nut to crack without a push from the ECB.
Malaysian Ringgit
Trade has been relatively quiet as the ringgit remains thinly traded with Asia traders focused on CNH but with a tepid inflation outlook and the miss on Q2 GDP their likelihood of a rate cut rises which of course will play out negatively for the ringgit.
Chinese Yuan
The market remains fixed on the Counter-Cyclical Mechanism but appears to be biding time just waiting to re-engage long USDCNH positions.