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Gold expected to be contained by interest rates and strong dollar

 

“Believe you can and you’re halfway there.” — Theodore Roosevelt

 

 

HEADLINES

 

  • Dollar climbs after U.S. services industry data, extends Tuesday's gain
  • Gold expected to be contained by interest rates and strong dollar
  • Oil falls 3%, pressured by surprise U.S. crude, gasoline build
  • Wall Street rises on tech, earnings boost as recession fears ease
  • U.S. Treasury yields move higher on new economic data
  • AUD/USD: Likely to re-test lows around 0.6600-0.6700 – CIBC
  • EURJPY Near Term: Upside favored

 

Dollar climbs after U.S. services industry data, extends Tuesday's gain

 

The U.S. dollar index was higher on Wednesday after data showed a surprise pickup in the U.S. services industry in July, which gave the currency further support after hawkish comments from Federal Reserve officials Tuesday.

The Institute for Supply Management said its non-manufacturing PMI rebounded last month from June. The increase ended three straight monthly declines. It also showed supply bottlenecks and price pressures eased, and backed up the view the economy is not in a recession.

The dollar index, which tracks the greenback against six major peers, was last up 0.3% at 106.76. The index had been down slightly heading into the report.

 

 

COMMODITIES

 

Gold expected to be contained by interest rates and strong dollar

 

Gold will average $1,745 an ounce in 2023, slightly below current prices, as high interest rates and a strong dollar reduce its appeal, a Reuters poll showed on Wednesday.

The gold price has fallen to about $1,770 an ounce from a high of $2,069.89 in March as the U.S. Federal Reserve and other central banks increased interest rates rapidly in an effort to tame inflation.

The higher rates have turned real yields on U.S. 10-year treasuries positive in April for the first time in two years, making non-yielding gold less attractive.

Gold has averaged $1,854 an ounce so far this year.

 

 

ENERGY

 

Oil falls 3%, pressured by surprise U.S. crude, gasoline build

 

Oil prices slid 3% on Wednesday, with losses accelerating after U.S. data showed crude and gasoline stockpiles unexpectedly surged last week after OPEC+ said it would raise its oil output target by just 100,000 barrels per day (bpd).

Brent crude futures were down $2.90, or 2.9%, at $97.61 a barrel by 12:17 p.m. ET (1617 GMT). West Texas Intermediate (WTI) crude futures fell$2.93, or 3.1%, to $91.49. Both contracts had seesawed previously.

 

 

STOCKS

 

Wall Street rises on tech, earnings boost as recession fears ease

 

Wall Street's major indexes surged on Wednesday, with gains in big technology companies lifting the Nasdaq to near three-month highs as key readings on the services sector and new orders helped calm recession fears.

A fresh batch of strong results from PayPal and CVS Health Corp also boosted sentiment in a largely upbeat second quarter that has helped markets bounce back from the fallout of the Ukraine war, rising inflation and a rise in borrowing costs.

Apple Inc (AAPL.O) rose 3.5% and Microsoft Corp (MSFT.O) added 2.7%, helping the broader growth stocks index (.IGX) outperform its value counterpart (.IVX).

 

U.S. Treasury yields move higher on new economic data

 

The search for safe assets eased slightly overnight, but investors are still following developments in U.S.-China relations after House Speaker Nancy Pelosi spoke with Taiwanese President Tsai Ing-wen. Her trip to Taiwan has drawn much attention, given the vocal opposition from China.

A surprise rebound on Services PMIs and solid factory orders in the morning checked the idea that the U.S. economy is in a recession and sent stocks to session highs.

And, hawkish commentary from multiple regional Federal Reserve bank presidents also bolstered yields. St. Louis Fed President James Bullard told CNBC Wednesday that he doesn’t think the U.S. is in a recession and that the central bank will continue to raise rates to deal with inflation.

 

 

ANALYSIS

 

AUD/USD: Likely to re-test lows around 0.6600-0.6700 – CIBC 

 

“We have previously highlighted the growing headwinds to domestic and global activity through inflation and hawkish central bank responses that have pressured the AUD to lower levels. We see scope for further underperformance ahead, underscored by the procyclical and high-beta nature of the currency. A prominent illustration of the pro-cyclical exposure of the AUD is now developing via the path of weaker commodity prices.”

“Commodities are being pressured as a result of building concerns over global growth and demand. Correlations between AUD and global commodities including copper and iron ore remain significant. The correlation between the AUD and commodity and equity indices is similarly noteworthy.”

“The balance of current risks still points to further AUD weakness. We expect a re-test of spot toward lows of around 0.6600-0.6700 will be seen before a major low is recorded.”

 

 

CHART

 

EURJPY Near Term: Upside favored

 

Technical View: Long position above 135.13. Target 136.85. Conversely, break below 135.13, to open 134.51.

Comments: The pair remains supported. Further advance favored.

 

 

Source: Trading Central 

 

 

 

CALENDAR

 

*Times in GMT

 

 

Source: FX Street Economic Calendar

 

 

SOURCES 

 

https://ca.finance.yahoo.com/news/dollar-climbs-u-yields-fed-010059856.html
https://www.reuters.com/markets/commodities/gold-expected-be-contained-by-interest-rates-strong-dollar-2022-08-03/
https://www.reuters.com/business/energy/oil-falls-demand-worries-stronger-us-dollar-2022-08-03/
https://www.reuters.com/markets/europe/futures-rise-ahead-services-activity-data-paypal-shines-2022-08-03/
https://www.cnbc.com/2022/08/03/us-treasury-yield-pelosi-pmis-fed-speeches.html
https://www.fxstreet.com/news/aud-usd-likely-to-re-test-lows-around-06600-06700-cibc-202208031651

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