Daily Macro Update: Oil a buy if Draghi matches market expectations; RBA and BoC rate decision key

Nick Batsford, CEO of Tip TV, was alongside Marc Ostwald, Market Strategist at ADM Investor Services, when he opened the Tip TV Finance Show to discuss the key data points this week including US NFP and the ECB meeting, as well as Fed tightening, Gold and Oil.

History of EUR/USD and Fed tightening

Batsford highlighted FX Street, who noted that the EUR/USD rallied from 1.1148 to 1.3822 between Jan 94 and 1995, then fell from 1.1750 in Jan 99 to 0.8230 where it bottomed out in 2000. They continued that tightening from the Fed began in May 2004, and it was accompanied by a spike in the EUR/USD from 1.2593 to 1.3660 in December 2014. They added that the EUR was a risk-on currency during prior tightening cycles, but now it is a funding cycle. They finished by outlining that 2015-2016 could see the idea of parity disappearing if the ECB disappoints and equities correct after the Federal Reserve hike interest rates.

Unemployment rate within US NFP the key data point this week

Ostwald commented that Yellen’s testimony and the ECB meeting are important, but the unemployment rate within the US NFP is the key data point as it will provide further clarity whether the Fed will indeed hike interest rates in December. He continued to Draghi and the ECB, which has plenty of scope for surprise and disappointment with the range of expectations facing the central bank on the deposit rate cut and extension of QE.

Gold, the Gold Bugs Index and Oil

Batsford believed that Gold broke its short-term support at $1065/ounce, confirming another decline targeting the $1000/ounce level.

In terms of the Gold Bugs Index, which represents un-hedged gold stocks, Batsford expressed that it still has to break primary support at 105, but this now appears to be inevitable.

Batsford continued that Crude futures (Light Crude January 2016 – CLF2016) are headed for another test of primary support at $40/barrel. Breach is likely and would signal another decline, with a target of $30/barrel. Ostwald added that OPEC meet on Friday, with no-one expecting anything from the meeting.

Limited movement from RBA and BoC

Ostwald finished by outlining that the market expects the RBA to hike once more and the BoC to be forced into hiking rates once the Fed act, but for this week no movement is expected from either central bank.