Investors Are Also Taking a Brief Respite Early This Week

The speculative length has been pared back as the robust NFP print caught investors leaning far too dovish. So, the moderate unwind is consistent with US rate cut expectation now intersecting with the economic realities.

But with Chair Powell critical Monetary Policy Report to the Congress slated this week, and after a bullishly breathtaking performance during the past four weeks, Investors are also taking a brief respite early this week. And rightly so as the swift and sudden change in market views, from no hike to 50 bp cut in and now back to 25, is enough to exhaust anyone.

In the meantime, Investors will turn focus to this evening FOMC minutes where they could get a glimpse into the Fed thinking and at a minimum, the report should provide appreciably more insight on exactly what risks the FOMC sees and the amplitude of policy needed to neutralise those risks.

Oil prices

Oil markets had remained supported overnight on heightened Geopolitical risk, but prices erased earlier gains during the NY session.

The weaker global economic outlook is keeping oil prices under downward pressure, but tensions in the Middle East are enhancing awareness to possible supply risk and should keep a floor under oil in the medium term. But the fact that Iran tension is not boosting prices more considerably continues to emphasise the markets singularly focused nature on the demand side of the equation.

It is challenging to hold a strong bullish conviction when the markets continue to overplay lousy economic news into the demand side of the equation.

Gold Markets

Demand from the official sector continues to underpin gold prices. The PBoC reported earlier on Monday that their gold reserves rose by 10.3 tons in June, making it the seventh consecutive month of inflows. This news follows on from Poland’s announcement on Friday that it had bought a chunky 100 tons YTD

But the robust US payrolls data suggests there is more than enough gas in the tank to keep the US economic firing through 2019 which has investors paring back dovish rate cut bets, strengthening the USD which are both weighing on gold sentiment.

However, with global economic risk skewed downward and should keep central banks in a dovish mode so Gold markets should continue to benefit from a shift in policy from the Fed and other central banks.

But eventually the money drip runs dry, and the central bank “PUT only gets the economy so far before we will need to consider longer-term trends such as recession, so look for strategic buying to remain dependable on any extended dips.

Currency markets

Funding pressures remain at the start of the week, which continues to work in the USD favour.

G-10 traders had shifted into USD buy on dip mode in the wake US employment data on Friday. Given the recent ECB developments and the convincing break below 1.1250 last Friday, the EURUSD sees the lion’s share of the flow so far. But with no joy below 1.1200 traders have turned to wait and see mode ahead of the FOMC minutes as EURUSD options have a deadly quiet start to the week.