FiboGroup Market Analysis 2019

FIBO Group representative
The Australian dollar came under further pressure in yesterday’s trading session as expectations grew the Reserve Bank of Australia is gearing up to slash interest rates next month with the chances of such a move predict by analysts now sitting at more than 90 percent.

The trigger for the rising odds was a speech by RBA governor Philp `lowe who noted that the central bank was prepared to lower interest rates if the situation was warranted which is a sharp turn from previous statements where any talk of a rate cut was stifled.

“Lowe came as close to pre-announcing a June rate cut as it’s possible for a central banker to get yesterday, stating that, ‘at our meeting in two weeks’ time, we will consider the case for lower interest rates,” said Ray Attrill, head of FX strategy at NAB.

The Australian dollar’s losses over the past week have largely been due to expectations of lower rates which has seen a 25 point basis cut priced into the market but some analysts claimed that one rate cut won’t be enough to get the economy back on track.

If expectations of a second rate cut start to gather momentum in the market the Aussie dollar’s woes are far from over and we are likely to see further losses for a currency which was once the darling for investors seeking a higher yield.

“The RBA are reluctant rate cutters. We have known that for some time. However, persistently below-target inflation, below-trend GDP growth and a slight rise in the unemployment rate mean that policy easing now looks imminent.” said Gareth Aird, senior economist at the CBA.

“We expect the RBA to cut the cash rate by 25 basis points to 1.25% on 4 June. A further rate cut looks probable and we think that it will most likely arrive at the August board meeting.” He added

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The gold price remains firmly above the US $1500 dollar mark in today’s trading session as traders seek out the precious metal as a safe haven on the back of political unrest in Hong Kong and the ongoing trade tensions between the US and China.

Over the weekend, there were major protests in Hong Kong which shut down the city’s main airport and with the situation threatening to spiral out of control some say it is only a matter of time before China intervenes in the unrest and this is likely to bring things to a whole new level.

Hong Kong is known for its financial stability and attracts foreign investment from far and wide and there are signs that the global financial hub is starting to be shunned by investors who are sitting on the sidelines and waiting for this mess to blow over.

The ongoing trade tensions between the US and China also has no end in site and some analysts are beginning to predict a favorable outcome could be some years away which may take its toll on the US economy and force further rate cuts from the US Federal Reserve.

Lower interest rates in the US are always a bonanza for gold.

“Gold prices have increased further as a weaker CNY sparked substantial U.S. and global growth fears. With growth worries likely to persist, gold could rise further, driven by an increased ETF allocation from portfolio managers, who continue to under-own gold. We raise our 3, 6, 12 month gold price forecasts from $1,450, $1,475, $1,475/toz to $1,575, $1,600 and $1,600/toz, respectively,” Goldman analysts said in a note.

“With the U.S. and China taking a harder line on trade, our economists no longer expect a trade deal before the 2020 president election. The depreciation of the CNY led to an increase in ‘fear’, lower long-term U.S. rates, and thus a higher gold price. they added.

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The oil price received a surprise boost in yesterday’s trading session climbing around 4 percent after the decision by US President Donald Trump to delay introducing more tariffs on Chinese goods held out hope that a compromise in the ongoing trade wars was still a possibility.

After the news that the U.S had decided to postpone tariffs on some Chinese goods, China announced that the two sides will hold new talks in two weeks to try and get the trade deal back o track which sent the oil price surging.

“Some of the pessimism about oil demand and the trade war is being washed out of the market by these announcements,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

The breakdown in trade talks has brought nothing but pain for the oil price as analysts believe that the issue will hit overall global growth so any return to the negotiating table was always going to boost the price.

“The possibility that the United States and China can get the trade talks on track ... is raising hopes that they might actually get some type of deal,” said Phil Flynn, analyst at Price Futures Group in Chicago.

“That’s why we are seeing this big rebound in prices,” Flynn added.

Tuesday marked the fourth straight day of gains for oil,helped along by Saudi Arabia’s discussion other OPEC producers about what additional steps the group could take to stop the slide in the oil price which is starting to take its toll on the Saudi Arabian economy as the country relies so much on the current price.

There is also the much anticipated public listing of its crown jewel, Saudi Aramco. Aramco’s valuation, which The Kingdom believes is $2 trillion, in reality is decided by the market and based on the current oil prices.

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Bitcoin has now lost more than 20 percent of its value over the last 5 trading sessions, trading today back below the $10,000 mark and one analyst believes the developments in the trade negotiations between China and the US may a major reason behind the fall.

In the first 10 days of August, bitcoin racked up solid gains as tensions between the world’s 2 biggest economies grew with US President Donald Trump threatening to impose more tariffs on all other goods from China starting September 1st entering the US which saw investors direct their money towards bitcoin as some sort of safe haven.

Trump has now agreed to delay the new tariffs until December so talks can resume, and this has given some hope that a compromise can be reached which saw traders exiting bitcoin and also gold.

"Now that trade tension with China has eased, the pressure on the yuan is off," Schiff said. "Those who bought bitcoin to speculate on Chinese safe haven buying, which never happened, are taking their chips off the table." Noted investor and chief executive of Euro Pacific Capital Group, Peter Schiff.

Another reason behind the fall may be the actions of regulators, and especially the SEC in the US who are stepping up plans to enforce current and introduce new laws surrounding bitcoin in light of the new market players about to enter the market and this is making investors nervous because nobody knows what will come next.

“It is without doubt that with the announcement of Facebook's libra, governments, regulators and central banks around the world have had to expedite their plans and approach to digital assets,” said Dave Chapman, executive director at BC Technology Group.

“The likes of libra and Walmart's digital currency could dramatically disrupt finance and payments” he added.

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The British pound found some much needed relief in yesterday’s trading session after a surprise jump in retail sales figures showed that despite the uncertainties surrounding Brexit, British consumers are still opening their wallets which is a good sign for the economy.

Positive figures like these leads to the belief that the UK economy will avoid a recession later in the year which is 2 consecutive quarters of negative growth and this may provide some temporary support for the pound.

"The rise in retail sales in July was encouraging and supports our view that the economy has picked up in Q3 after contracting by 0.2 percent in Q2," says Gabriella Dickens at Capital Economics.

"Of course, the retail sector only makes up about 30% of total household spending. But spending growth off the high street appears to have remained fairly steady. So July’s figures leave us more confident that the economy avoided another contraction in Q3." She added.

Some analysts however say that any economic data whether positive or negative will be overshadowed by the current Brexit debacle and as the deadline of October 31st nears the odds of a no deal Brexit will grow.

The Market is currently not convinced that a No deal Brexit is the likely scenario but as time goes on and this option begins to become main stream, the pound may continue its downtrend and further losses of up to 10 percent are not out of the question

"Heightened Brexit uncertainty and the ongoing slowdown in global growth have increased downside risks for the UK economy heading into the second half of this year. We now believe that a No Deal Brexit is more likely than not, and it could tip the UK economy into recession," says Derek Halpenny, Head of Research at MUFG.

"The UK has set to conditions for negotiations – to agree to reopen the Withdrawal Agreement for re-negotiation and to scrap the backstop. European leaders have consistently stated that the Withdrawal Agreement and the backstop in it cannot now be changed. We are heading for a major showdown that will likely involve some degree of constitutional crisis, financial volatility and probably a general election," he added.

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The gold price has taken a breather over the last few days after rallying more than $100 dollars in the space of 2 weeks and some see the pause as temporary with the $1600 mark now firmly in reach.

Gold did find some resistance at the $1500 mark before finally breaking through and now this level has turned into a solid support base which will be the catalyst for the next upward movement.

Apart from strong technical levels, the news that will drive gold higher will be the uncertainties surrounding the issues in Hong Kong, as well as the Brexit mess and the ongoing trade dispute between the US and China.

“Gold has breached critical resistance levels and the momentum is skewed to the upside”, said Peter Hug, global trading director of Kitco Metals.

“I’m very constructive this gold market. There’s just a lot of issues in the market. Ignoring the Chinese tariff issue, which is obviously a big issue, we have the Italian banks that are in serious financial trouble…you’ve got the issue with Hong Kong and China, so there are just so many macro issues out here that suggest that you do not want to be not in the gold market. Any kind of pull back is a buying opportunity” he added.

There are fears now that the US economy may be headed for a recession going in to 2020 and this is evident by the US yield curve which is currently inverted.

This is on top of prediction that some central banks around the world such as the ECB and Bank of England are gearing up to lower interest rates which is only going to add to the attractiveness of gold.

“The US yield curve is a key factor that seems to be driving the upmove in gold prices. This is something similar to what we saw during 2008-09," said Debajit Saha, senior precious metals analyst at Thomson Reuters GFMS in India.

“Currently, the US yield curve is inverted and more easing by the central banks would make gold an attractive asset. An inverted yield is seen as a sign of recession, which means safe haven demand for gold should rise."

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Despite all the pressure facing the European economy the Euro has managed to remain above the $1.10 level, but it seems the market is predicting its only a matter of time before this critical support level is broken.

The chance that the European currency will fall below $1.10 before the end of August have risen to 49%, according to Bloomberg’s options pricing model.

Risk reversals which is a key barometer of market positioning and sentiment, show that traders are now bearish on the euro over the short and long terms.

Issues surrounding the Euro include the potential for the European Central Bank to reduce interest rates further and introduce bigger stimulus measures than the US Federal Reserve currently has planned

The risk of a no deal Brexit is also expected to weigh on the currency and some analysts predict that in a worst-case scenario we may see it end up on parity with the US dollar.

This week’s meeting at Jackson hole where the main focus will be the highly publicized speech from US Fed President Jerome Powell is likely to be make or break for the Euro as some believe that Mr Powell will not be as dovish as earlier expected and may even talk up the strength of the US economy.

“At the moment, the Federal Reserve is hyper-conscious of the fact that the president of the United States is doing everything in his power to politicize monetary policy-making,” said Ranko Berich, head of market analysis, at Monex Europe

“What we’re seeing from Powell’s policies is to push from that politicizing very strongly, so a big pontification speech at Jackson Hole is the complete opposite of what he’s trying to achieve at the moment,” he added.

FIBO Group representative
he oil price is stuck in a tight trading range today as worries about the global economy surfaced placing equity markets were under pressure and raising uncertainty over how many interest rate cuts the US Federal reserve will deliver this year.

Some of this uncertainty may be relieved later today by a speech from Federal Reserve Chair Jerome Powell in Jackson Hole, Wyoming, where he is expected to lay out US monetary policy going forward and likely hint at the amount of rate cuts the Fed is likely to deliver.

“The market will be shifting focus today to broader based macro headlines with comments out of Jackson Hole likely to be prioritized in this regard,” said Jim Ritterbusch, president of Ritterbusch and Associates.

“While we are not expecting any dramatic developments capable of swinging the equities either way by more than 1% or so, we feel that current bullish momentum in the oil market could allow the energy complex to absorb bearish guidance much easier than any negative Jackson Hole guidance that may be forthcoming” he added.

Powell has been fairly bullish about the US economy of late which has caused the US dollar to surge which is usually negative for gold as it raises the price of the commodity for holders of other currencies.

US President Donald Trump has been a vocal critic of the Fed chairman in recent month’s by reiterating the need for lower interest rates and squarly pointing the blame at Powell for keeping them at current levels.

He may succumb to the pressure today and turn slightly dovish which may set oil up for some sort of rally.

"If Powell talks about lower for longer and reverses some of the hawkish comments that we heard from Fed members earlier this week, we could see it supporting oil," said Michael McCarthy, chief market analyst at CMC Markets in Sydney.


Based on my analysis, I also think that there is huge probability for Euro to break down to $1.1. However, currently political situation between US and China is influencing a lot market to hold to current levels. But, eventually we will see what will happen after ECB meeting