Asia FX dead cat bounce? and gold's enduring appeal?

Stephen Innes SPI Asset Management

Asia FXDead Cat bounce?

Asia FX has skewed "risk-on "today as the market has been a better USD seller. The most significant Axes, USDCNH selling reportedly led by hedge funds and net buying of AUDUSD by everyone. Most of USD/Asia has traded lower, with the moves exacerbated by the tariff headlines, although, knowing the bumpy road for a trade deal that lies ahead, traders haven't exactly been falling over themselves buying Asia currency risk. The only outlier to this "risk-on" move is USDSGD, which has been our feature trade over the past 24 hours (short SGD vs. the world)

But I think the up step in Asia FX is a dead cat bounce absent any quantifiable justification, so traders could look to buy the dip given the weak regional economic prospects in 1Q

Gold

Gold is trading higher even though the risk lights are flashing Green. It seems that gold investors are catching a bit of US election risk and are starting to focus on the US swelling deficit that is failing to reduce despite the US economic upswings. This should be great for gold!

Impressive that gold jumped higher when China cut some trade tariff gold investors probably think that things could be worse than current market pricing

Two main obstacles I see for gold to break higher are US exceptionalism, which sees both the USD and SPX punching higher.

I don't see an apparent reason to add, but there are several good reasons to hold current longs at this juncture despite today's risk-on move. US-Sino trade deal and complex 'Phase Two' negotiations, which have yet to start, may aid gold. And the UK faces an uphill road as negotiations with the EU commence. Not to mention the Middle East and other regions' geopolitical risk remain fragile.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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