Summary:
- EURUSD fragile, can the ECB buoy the outlook?
- Gold prices have recovered, traders eye the US GDP
- Elections in Brazil crucial for USDBRL and soft commodities
Brexit uncertainty, the Italian budget, weak economic data (especially the PMIs) – most recent factors have been euro negative as of late, and even weaker data from the US along with president Trump's negative remarks about the Fed did not prevent EURUSD from falling to 1.14. Could it get any worse for the euro? Simply put, yes - and key is the ECB. The Bank promised to end the QE program by the end of this year and signalled a rate hike in autumn of 2019. Politics can change very quickly and reduce the uncertainty that weighs on the euro – we’ve seen this before, but for any major EURUSD recovery it is absolutely crucial that the ECB sticks to its plan. ECB decision: Thursday 12:45pm BST, conference begins 1:30pm BST.
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Can the EURUSD defend ’18 lows? A lot will depend on the message from the ECB. Source: xStation5
Gold prices have recovered lately a bit but remain shackled by high Treasury yields. Note that US bonds have hardly recovered despite a slump in equity prices mostly because market participants expect the Fed to stay on the course of rate increases in response to the strong economy. The US economy was very strong in the second quarter when it expanded by 4.1%. This pace is unsustainable and it is believed that the US economy slowed down to a still strong 3.3% with price pressure also weaker (Core PCE is expected to decline from 2 to 1.8%). Traditionally, weaker US data is positive for gold prices as it translates into weaker dollar and lower Treasury yields. Data release: Friday 1:30pm BST.
Gold prices have recovered after setting a higher low. $1235 is a short term resistance that separates gold prices from a larger rally. Source: xStation5
Last but not least we have the second round of presidential elections in Brazil. Let us recall that investors’ favourite Jair Bolsonaro won the first round decisively, leading to declines on USDBRL (as the undervalued real recovered) and consequently to major rallies in SUGAR and COFFEE prices. Now the Bolsonaro win has been pretty much priced in as the polls give him support between 57 and 60% and his actual win may even cause a small profit-taking. However, USDBRL stopped at a major support of 3.70 that has so far prevented further gains in the real. Bolsonaro win is seen as a precondition for the pair to eventually move lower with consequences for SUGAR and COFFEE as well. Elections will take place this Sunday.
USDBRL declined following the first round of presidential elections but it stopped at 3.70 support. Could the Bolsonaro win lead to break of this level? Source: xStation5
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