Weekly Market Report – 15.10.2018
CurrenciesEUR/USD – was trading firmly lower yesterday, as the USD was strong across the board, but we saw a severe strengthening of the EUR when reports came in that the ECB is likely to start tapering of its QE program soon. The immediate result was that the EUR climbed over 80 pips to trade above the 1.12 level again.
USD/JPY – with more hawkish comments that the FED could and possibly should raise the interest rate this year, possibly already next month, we see the USD strengthening. Another aspect that also has affected the rate is more risk-on sentiment, in part because the ECB might be slowly winding down its QE program.
GBP/USD – has been hit pretty hard as prospects for a Brexit occurring possibly sooner and harder than anticipated. All this due to an interview over the weekend by British PM May, sending the GBP to break below the lowest levels after the Brexit vote. The fact that the USD also strengthened obviously also doesn’t help, and with a lot of data coming up, there is a risk for further downside.
AUD/USD – after dropping sharply yesterday, for a large part also due to the drop in gold, we see a nice correction, as not only gold corrects up, but also because the data out of Australia was better than expected.
IndicesDollar Index – reached the highest level in nearly 2 months as there is mounting pressure to raise the interest rate and some have actually mentioned that November is a possibility, even though the elections are only a few days after the rate decision, which makes this unlikely. The chance that this will happen is low, but it creeping up, especially if we will get a good NFP on Friday.
S&P 500 – the reported plan of the ECB to start reducing its QE program in the near future and also the prospects for a rate hike, are weighting on the S&P. If oil would have been trading lower as well, we would likely be trading at even lower levels, so for now oil is what is preventing a much sharper drop.
CommoditiesGold – plunged $50 yesterday to reach the lowest level since the Brexit referendum and also drop below the 1300 level. There are 2 reasons for this: on the one hand, a stronger USD as there is still a very good likelihood that the FED will raise the interest rate this year. The second is more willingness for risk taking, as the ECB could be starting to reduce its QE program, which signals more optimism. We are approaching the NFP on Friday, which, if bad, could send gold fast back up to the 1300 level again.
Oil – has continued to move up ever since OPEC reached an agreement last week. It has since gained around $5 which is further supported by another draw in the API crude stock. The API data showed that the crude stock declined by a further 7.6 million barrels. The expectation for the EIA data is a build of 2.5 million, so it appears that the EIA expectations are well off for possibly the third week in a row. We are nearing the resistance, but with a large draw in the inventories, the resistance could prove not to be such a big obstacle.