Markets Tightens After FED's Statement and New Tariffs
The overall macro sentiment shifts towards the tighter than expected monetary policy in September: after strong GDP data for the US, and Jerome Powell's press-conference, probabilities of interest rate in September shift towards 4.25 – 4.5 (60% of traders bet on this scenario according to FEDwatchtoll), which indicates the ambiguous situation around inflation.
Yields of 30-year bonds in the US stabilize around achieved levels. The overall situation rather provides some pressure for cyclical assets and provokes capital to return to safe havens and rotation from speculative instruments back to the US dollar.
Along with the US dollar, Japanese Yen also gains strength, as yields of 30-year bonds of Japan are kept at highs. Other 'safe havens', such as Swiss Franc, for example – don't show resilience in today's markets.
The market entered the last summer month, August. It's usually considered a month with low volatility, but in case of unexpected geopolitical events, volatility may come earlier than in September.
The US President Trump had announced a deadline for the Russia-Urkaine conflict for Aug 8 (end of next week) and pressured India and China to impose more tariffs in case of buying oil from Russia. This situation adds some uncertainty to the global energy markets, which we observe in the form of rising Crude oil.
Crude Oil
Crude oil climbs higher towards the peak of the Bollinger Bands: the upper border of a technical trading range. Oil is a momentum based instrument, i.e. it can continue the breakout, but given the main declining trend, the breakout probably has a small chance to be sustained.
One may monitor for excessive breakout and spikes to the gray area (potential resistance area): in case the area is rejected, the mean-reversion trade with a price getting back to the range (and hitting $60 later within the year) might be a preferred option.
Gold
Gold is pushed down by the retreating US dollar and tight yields of 30-year treasury bonds, but the overall main trend still might be considered bullish.
To continue climbing higher, however, it needs a trigger or shift in the narrative. The latter is unlikely, but it might find a technical trigger by a spike to the downside, as shown in the chart.
If the responsive buying activity is visible, we might observe Gold getting back to the range.
Commitment of Traders reports show commercial traders slowly unloading their positions, but the net position is still far from the bottom, so the uptrend might be intact.
This article was originally posted on FX Empire
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