Fibogroup Market Analysis 2017

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The gold price is stabilizing today after suffering its biggest loss in 6 weeks yesterday on the back of strong retail sales numbers from the US

The figures hit the market at 0.5 percent against expectations for a number of 0.3 percent and once again raised speculation that the Fed may raise interest rates again this year.

It seems that some investors have a short memory and they forgot about the release of CPI numbers from the US last week, which came in well below consensus and are sitting well short of the US Federal Reserve’s target rate of 2 percent.

We believe the inflation numbers concern the Fed the most and this is why no further rate hikes are expected this year.

On the chart, we can see that gold found strong support over the last 2 days around the $1,270 mark and this should be the base to resume the current uptrend.

The Fed minutes released later today will be the catalyst for the drive higher and we do not expect too much optimism from the central bank today which is going to benefit gold.

 

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The British pound has drifted lower midway through the European session, brushing off better than expected retail sales figures but some predict that the currency is reaching a bottom and now may be the time to get in.

At 2.07pm (GMT) the British currency was trading at $1.2882 down slightly down from $1.2890 in yesterday’s close.

The latest retail sales figure from the UK hit the market at 0.3 percent against analysts’ expectations for a number of 0.2 percent although the yearly figure missed consensus coming in at 1.3 percent against market predictions for a number of 1.4 percent.

This is now the 2nd time in consecutive days the market has seen positive data from Britain following on from yesterday’s jobs figures,

“It was again some good news for sterling. The labor-market report yesterday and today’s retail sales both came in above expectations” said Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam.

With the pound now under $1.29 some say it is a good time for buyers as the underlying factors show an undervalued currency,

“Sterling looks extremely undervalued on most measures. Brexit will change the UK’s current trade relationship with the EU, but everything has its price." noted Dean turner of UBS Wealth Management

"Indicators for the manufacturing sector show that the weaker currency is boosting export demand. It should also make the UK a relatively attractive place for foreign companies to invest. Political noise ebbs and flows and, with it, exchange rates." He added

 

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As we reported in Wednesday’s technical report, gold would benefit on the back of a dovish minutes report from the US Federal Reserve whose members are split on any further rate hikes in the nearest future.

That pretty much means the nail in the coffin for any further rate hikes this year from the Fed.

Gold was also helped in today’s trading session by a terrorist attack in Barcelona as well as reports that congressman from the Republican party are deserting US President Donald Trump which means he won’t have the numbers to push through any economic policies.

"In a week where we started by worrying about nuclear war, markets have quickly moved on from this, with yesterday's weak session more of a response to fears that Mr Trump's strategy for the economy and business is falling apart and later the terrible terrorist attack in Barcelona," Jim Reid, a strategist at Deutsche Bank, told clients in a note.

On a technical level, it’s all looking good for gold and after finding solid support on Wednesday at the $1,270 mark, it has now broken through the psychological $1,293 mark which was the most recent top.

Gold has now made a higher double top, which should become the next support level. We believe gold will test this support level at around $1,293 before continuing its uptrend and breaking through $1,300

 

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The oil price is taking breather today after racking up solid gains last Friday after a report showed the number of oil rigs decreased in the US for the second time in 2 months.

Oil production has been on the rise in America in recent months but it has failed to stop the reduction in supplies due to a number of factors such as production cuts from OPEC,

“Despite the fact that production has increased, it remains the case that inventories are falling,” said Ric Spooner, an analyst at CMC Markets in Sydney.

“It does indicate that the OPEC cuts are working. Prices remain in a range of about $44 to $52 at the moment.” He added.

Analysts at Citi bank predict that the oil price will be stuck in the $40 to $60 range over the next 5 years on the back of increased shale drilling in the US and as projects from countries such as brazil and Canada come on board.

This goes against prediction that OPEC cuts will eventually lead to a huge gap in the market and drive the oil price significantly higher

"This is contrary to the conventional wisdom forming and espoused by the likes of the IEA to the Saudis and the Russians among others, who warn that a supply gap is emerging imminently, perhaps by the end of the decade," Citi analysts wrote.

 

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The Australian dollar remains well supported today on the back of rising commodity prices which many attribute to the booming construction industry in China

Iron ore, Australia’s biggest export has now risen 47 percent in just 2 months as Chinese demand outstrips supply and according to many analysts, the trend is set to continue for the foreseeable future,

“Iron ore prices are rising on demand hopes as higher steel prices encourage Chinese steel mills to boost production,” said Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank.

“We expect Chinese steel demand to be well supported over the next few months as policymakers shore up economic growth ahead of a leadership transition in the final quarter of the year.” He added.

More and more of the big names are now admitting they got it wrong about the Australian dollar with some predicting that the currency would be languishing around the US70c mark by the end of the year.

As things stand now its more than likely the the Aussie dollar will be at US80c before too long

"Having held our nerve through the first seven months of 2017 with our long-standing call for the AUD/USD to fall to 70 cents by the end of this year, the ever-diminishing prospects for a significant near-term recovery in the US dollar now forces us to acknowledge that it is now difficult to expect such a steep fall this year," noted analysts from National Australia Bank's FX strategy team .

"The long and the short of our forecast revisions is the limited prospects for an early reversal of the now 9.5% fall in the US dollar since the start of the year," they added.

 

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US President Donald Trump’s rhetoric has once again underpinned the gold price after he threatened to shut down the government at a rally in Arizona if he does not get the funding to build a wall between the US and Mexico, which was one of his campaign, promises.

"If we have to close down our government, we're building that wall," Trump told his supporters in Arizona.

As a result, gold pushed higher at the expense of the US dollar which was quickly sold off.

"It's clearly concerning if he wants to tie the wall to the government shutdown. That's certainly an issue and that's an issue for the dollar," Chris Watling, CEO of Longview Economics

On the chart, we can see that gold has been stuck in a tight trading range for the past five sessions with good support at the $1,282 level.

The highlight for gold this week and the potential catalyst for a break above the strong resistance level of $1,291 will be the central bankers meeting held over 4 days beginning on Thursday in Jackson Hole, Wyoming

The range of speakers speakers from around the world include Fed Chairwoman Janet Yellen and European Central Bank President Mario Draghi who will lay out their economic policies.

Over the years, the gatherings at Jackson Hole have moved financial markets significantly including the gold price and this time should be no different if Yellen comes out with a dovish approach on the US economy and it maybe just what gold needs to push higher.

 

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The British pound came under further pressure today before recovering later in the trading session on the back of disappointing local data and a possible leadership challenge to the Prime Minister.

At 1.18pm (GMT) the British currency was trading at $1.2830 after reaching a low of $1.2774 earlier in the day.

GDP figures from the UK hit the market today at 0.3 percent, bringing the yearly total to 1.7 percent which shows the economy is still nervous over the possibility of what Brexit will bring.

For the time being it looks as though the pound will remain subdued with further losses expected until the British government deliver a clear cut plan to their European counterparts on their intentions surrounding Brexit

“It depends on how sterling trades today and over the course of the next couple of days, but we could be at the worst level for sterling ever,” said Jeremy Cook, chief economist at currency firm World First.

In a startling development, there are now rumors that ministers in Theresa May’s own government are secretly trying to replace her as Prime Minister in the Run up to the conservative party conference on October 1st.

Should they prevail in ousting May, the British pound may see a mini flash crash as it did after the Brexit vote,

“We think the pound could struggle versus the euro into October, when we’ve got the Tory party conference and the threat of Theresa May being ousted” noted Kathleen Brooks, research director for City Index.

 

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The Australian dollar is powering ahead today against its US counterpart after last week’s meeting of Key central bankers at Jackson hole

Speeches from US Fed President Janet Yellen and ECB president Mario Draghi at Jackson Hole failed to impress investors with Yellen giving the impression that further rate hikes in the US may not be forthcoming contrary to what was predicted esrlier,

“Yellen said that ‘substantial progress’ has been made toward the Fed’s economic objectives of maximum employment and price stability, but her comments suggest the Fed is closer to the end than the beginning of their tightening cycle,” noted Joseph Capurso, senior currency strategist at the Commonwealth Bank.

Mr Capurso also said the ECB president Mario Draghi surprised the market by not mentioning the current strength of the Euro and the potential damage it could have on the European economy,

“Draghi did not mention the EUR’s recent appreciation in contrast to the expectations of some market participants that Draghi would talk down the Euro” he added.

With little in the way of local data this week the Australian dollar is likely to be driven by external factors such as GDP numbers from the US and the all important unemployment rate and Non-farm payrolls figures on Friday.

 

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Gold is powering ahead following on from gains of more than $20 yesterday after a missile test from North Korea greatly increased the chances of a military conflict in the region.

North Korea's latest missile test which flew directly over Japan sent the Japanese people running for cover and landed in the water less than 800 miles from the coast

"North Korea's missiles over the Japanese Hokkaido islands obviously fueled buying for the flight for safety kind of money including the Japanese yen and gold," said Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank.

This event follows on from last Fridays dovish speeches at Jackson hole Wyoming from US Federal Reserve President Janet Yellen and ECB President Mario Draghi which was also a driver of the gold price,

Jeffrey Halley, senior market analyst at currency trading platform Oanda, said in a note that gold should push higher from here which may be at the expense of the US dollar

"The events of this morning have somewhat overshadowed gold's performance in the New York session where gold proceeded directly to go and put in a monster $20 rally from its opening," he said. "Trump's negative comments on the NAFTA renegotiation and no tightening signals from Jackson Hole see U.S. dollar selling renew with vigor in New York." He said.

US President Donald Trump has yet to weigh into the North Korean Saga but it is expected it is only a matter of time before he does and depending on the tone of his voice, investors are likely to keep heading for gold.

 

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The Australian dollar hit the US80c mark today before pulling back later in the trading day after a strong round of local data and some analysts are predicting that this is the beginning of a much larger rally.

Data out earlier today from the Australian Bureau of Statistics showed the number of building permits at -1.7 percent and although in negative territory was much better than analysts expectations for a figure of -5 percent.
This, along with the continuing strength in commodity prices as well as an overall rebound in the global economy is expected to help the Aussie dollar rise well above US80c,

"The unexpected large improvement in the world economy has supported Australia's commodity export prices for longer than expected," noted CBA chief currency strategist Richard Grace

"Mining commodity prices are lifting despite increases in commodity supply. This means demand for commodities is increasing at a faster rate than commodity supply. We believe this is because G3 demand that is, the US, the Eurozone and Japan for commodities is just as important as Chinese demand." he added.

US President Donald Trumps inability to push through his political agenda such as tax reforms and spending on infrastructure is expected to hurt the greenback and boost the Australian dollar as much of the US dollar's strength had already been priced into the market and is now being sold off.