Asia Wrap: TGIF ( FX-Oil and Gold)

Stephen Innes SPI Asset Management

Currency markets

G10 FX vols are holding in for now in though spot markets are slow due to the Lunar New Year holidays across the region. Implied levels are already low, and concerns regarding the new coronavirus outbreak continue, so market makers do not want to be short just in case contagion fear escalates over the weekend. If the virus outbreak expands, it could significantly impact the currency market at the Monday open when liquidity is sure to be thin with Australia, Singapore, and Hong Kong markets closed.

Oil

It was a bit of a nothing burger on fuels in Asia as the timely decline on the US crude inventories and the WHO's decision not to declare the new coronavirus outbreak as an international emergency provided a big enough band-aide to stop the oil market bleeding.

Too many Asian big oil traders are sidelined today, and the chatlines were empty. So, nothing to be gleaned from today's price action, although the calm would argue for more short positions to cover into the weekend. But with the oil market likely to bear the brunt of any flu fall out, and if the current level of contagion mushrooms, that thought alone would suggest few if any oil traders would be willing to build "long position" risk ahead of the weekend.

Gold

The strategic buyers continue to buy gold dips in part because of the weekend risk but mostly for reasons beyond the flu virus. At the current projected contagion level and low mortality rate, the Wuhan flu is unlikely to have any material impact on Fed policy.

However, next week Chairman Powell will be grilled about the financial stability risks created via the Fed's liquidity injection due to balance sheet expansion. There's no blueprint for unwinding the balance sheet without some element of risk, but gold offers the ultimate hedge for a Fed policy or even communication misstep.

It remains a very comfortable environment to own gold with US yields drifting lower and 10-year TIPS lingering around the lower end of the range. The more prolonged low yield environment continues to add to golds allure as a must-have hedge against the backdrop of a plethora of market uncertainties.

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.

EUR/USD off highs, back to 1.1850

EUR/USD loses some upside momentum, returning to the 1.1850 region amid humble losses. The pair’s slight decline comes against the backdrop of a marginal advance in the US Dollar as investors continue to assess the latest US CPI readings.

GBP/USD advances to daily tops around 1.3650

GBP/USD now manages to pick up extra pace, clinching daily highs around 1.3650 and leaving behind three consecutive daily pullbacks on Friday. Cable’s improved sentiment comes on the back of the inconclusive price action of the Greenback, while recent hawkish comments from the BoE’s Pill also collaborates with the uptick.

Gold surpasses $5,000/oz, daily highs

Gold is reclaiming part of the ground lost on Wednesday’s marked decline, as bargain-hunters keep piling up and lifting prices past the key $5,000 per troy ounce. The yellow metal’s upside is also propped up by the lack of clear direction around the US Dollar post-US CPI release.

Crypto Today: Bitcoin, Ethereum, XRP in choppy price action, weighed down by falling institutional interest

Bitcoin's upside remains largely constrained amid weak technicals and declining institutional interest. Ethereum trades sideways above $1,900 support with the upside capped below $2,000 amid ETF outflows.

Week ahead – Data blitz, Fed Minutes and RBNZ decision in the spotlight

US GDP and PCE inflation are main highlights, plus the Fed minutes. UK and Japan have busy calendars too with focus on CPI. Flash PMIs for February will also be doing the rounds. RBNZ meets, is unlikely to follow RBA’s hawkish path.

Ripple Price Forecast: XRP potential bottom could be in sight

Ripple edges up above the intraday low of $1.35 at the time of writing on Friday amid mixed price actions across the crypto market. The remittance token failed to hold support at $1.40 the previous day, reflecting risk-off sentiment amid a decline in retail and institutional sentiment.