4th September 2019 - The risk aversion persists amid USD setback and gold soaring

Walid Salah Eldin

Active member
Again the gold takes the lead from the greenback which could make another progress versus the major currency earlier in the beginning of the week.

Gold is trading now near $1545 per ounce, after it could get leeway to appreciate amid USD downward corrections versus the major currencies which suffered from the greenback pressure by the end of last week and in the beginning of this week.

This scenario has been repeated several times since last May, amid lower interest rate outlook and persisting fear of the Trade War consequences could drive the governmental yield curves across the broad lower.

While there is no sign yet of even a close by deal for just a meeting between US and China trade representatives, after President Donald Trump insisted on imposing 5% higher tariffs on $112 billion of Chinese imports to be 15% taking effect in the beginning of this month ignoring the Chinese calls to hold.

After this week published data have shown global manufacturing slowdown, The Fed is looking ahead of another 0.25% Fed fund rate cut this month to have the first back to back cut since 2008 to boost the economy and elevate the inflation rate.

The Federal Reserve Chairman Jerome Powell assured last month in Jackson hole on the global economic slowdown because of the Trade war and the need to support the economy earlier by easier monetary policies

Powell is expected to talk again by the end of this week, following the release of US labor report of August which is expected to show adding 160k of Jobs out of the farming sector and rising of average earning per hour by 3.7% as the same as July. Both events are so important to the markets which are nearly fully priced in another interest rate cutting to come on Sep. 18.

While is looking ahead of triggering another stimulus package next Sep. 12, after the recent comments from its broad members paved for that action to boost the economy to spur faster growth like Bank of Finland Governor Olli Rehn, while the markets are waiting today for The ECB to talk to the European Parliament about its plans.

Despite the actual historical low interest rates levels in EU which are exposed to go lower further next week, Lagarde nomination is considered by most of the market participants tendency to much easier monetary policy to come for raising the inflation levels and supporting the struggling EU economy which can be stimulated by also easier austerity measurements.

As The German Finance Minister Olaf Scholz referred to recently paving the way for other governments inside the Euro zone to support their economies by easier austerity measurements such as Italy which is living in persisting unstable political stance mainly because of EU imposed fiscal austerities on it to fix its financial situation and tighten its deficit.

So, the next round of easing by the monetary policy is expected to support the fiscal policies makers by higher limits of funding with lower costs and easier conditions throughout cutting rates further and adopting made QE program for that purpose.

While UK is looking ahead of prices turmoil over the consuming and also the producing level in the coming period of time which can watch very low business confidence levels and very much rumors.

BOE is expected to criticize Boris's efforts to crush UK out of EU anyway without a deal threatening the banking and financial sectors which are now ahead of material economic disruption, not just longer stalling and lower confidence in business spending waiting for higher certainty.

BOE's Chief Mark Carney is expected to repeat again his talking about the risk of hard Brexit, amid the current global economic slowdown which is weighing down on the economic activity in UK as many other industrial countries because of the trade war which can lead to much lower Yuan exchange rate.

BOE is expected to send stronger easing signals next and it may cut the interest rate even before Oct. 31 to boost confidence and stimulate the demand and avert further economic deterioration in UK, Despite the pressure on the British pound which can fuel the inflation.

As BOE did more than a decade ago by the end of 2008 when the inflation reached 5.2% and there was economic shrinking in the same time lead to 3 ways split inside the MPC ended to considerable easing actions drove the interest rate down from 5% in September 2008 to 0.5% in March 2009 because of the global credit crisis.

GBPUSD is now trading close to 1.21, as it could be boosted by U.K. Prime Minister Boris Johnson failure yesterday which paved the way for new parliament election and longer holding of the current uncertainty about Brexit.

EURUSD is still unable to get back above 1.1000 psychological level ahead of next week ECB meeting, while USDJPY is depressed by the risk aversion sentiment returning trading currently close to 106 level, as the Risk-off Sentiment usually causes unwinding of the carry trades supporting the Japanese currency as a low cost financing currency.

UST 10 year yield is now well below 1.50% near 1.47%, JGB 10 year yield is near -0.28% close to its scored all times low at -0.285% in 2016, The German 10 year Bund yield is now close to -0.70% rising from its scored all time low yesterday at -0.741% by last week end and UK 10 year Gilt is now looking to have a place back above 0.40% after diving yesterday to 0.346%.

Have good trading times

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
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