The directionless US session overnight appears to be spilling into Asia today. Pre-weekend lethargy seems to be the theme with China's slew of tier-1 data releases this morning unable to lift the malaise. It appears that US Industrial Production and Retails Sales due this evening, and the hope of developments on stimulus talks from Capitol Hill, are taking precedence over local data.

US yields continued to move higher overnight, with the bid to cover ratio for the 30-year bond auction relatively weak. The spill over into other markets was nondescript though. The firming of yields was most noticeable in the long end of the curve. However, I suspect this was driven by the impending supply overnight and is not a precursor to a structural change in the curve. The Federal Reserve remains an uber dove, and we can be 100% sure that they will nip any significant rises in long-term yields, or any yields for that matter, in the bud.

China's Industrial Production and Retail sales both underperformed. Industrial Production YoY rose 4.80% (5.1% exp.), but Retail Sales missed badly, falling by 1.10% (0.10% exp.). China, having shown a consistent track of improvements since March, will probably be given a grace period this time around. Any fallout was reduced by the PBOC announcing that it will another Medium-Term Lending Facility (MLF) auction on Monday. The amount is undetermined but is likely to roll over the CNY400 Bio maturing Monday at the very least. The PBOC has been somewhat stingy with liquidity in 2020, conscious of creating even more bubbles in its economy. A low headline number could provoke profit-taking in Chinese equity markets as the new week starts.

US Retail Sales and Industrial Production are released this evening. The Month-on-Month data will garner the most attention, giving granularity as to whether the US recovery remains modestly on track, or whether Covid-19 is turning the hopes of the market from a V to a very fat U. Retail Sales are expected to rise by 1.90% MoM, with Industrial Production MoM expected to increase by 3.0%.


Asian equity markets are book profits ahead of the weekend

A directionless session from Wall Street has set up much the same picture in Asia today. Most major indices are drifting each side of unchanged lethargically. The story was much the same in New York, with the S&P 500 falling 0.21%, the Nasdaq rising 0.27%, and the Dow Jones easing 0.29%.

In Asia, profit-taking ahead of the weekend has ended the Kospi's 9-day rally, the index falling 1.50% today. Elsewhere though, the picture is much calmer. The Nikkei 225 is unchanged, with the Shanghai Composite, CSI 300 and the Hang Seng down 0.10%. 

Across the region, Kuala Lumpur has fallen 0.70% ahead of Malaysia GDP at midday, with the Straits Times just 0.10% lower. More dovish noise from RBA Governor Lowe has seen Australian markets rally modestly. The ASX 200 climbing 0.70%, and the All Ordinaries rising 0.40%.

I do note that despite all the noise surrounding near record highs etc. on Wall Street, all three major indices are tracing out multi-day tops. They may be butting up against new highs, but none can break through them, notably on the NASDAQ and S&P 500. Adverse developments on the US stimulus front, or weak US data this evening, could be enough to start a downward correction. 

As I stated on Monday, my call for a top in several markets could have made me a hero or a zero by today. With markets in drifting mode today, I am at this stage neither. That does not mean I am out of the game, though.


Major currencies continue range-trading

The US Dollar eased ever so slightly overnight, despite US yields firming. The dollar index fell 0.20% to 93.23, smack in the middle of its one-month range. The same can also be said for the EUR/USD, the leader of the great Dollar sell-off these past two months. It has finished at 1.1810 overnight. The single currency needs to break above 1.1920 to signal the next leg of the US Dollar sell-off has begun. Conversely, a fall through 1.1700 is an equally powerful signal that a deeper US Dollar correction is upon markets.

The most vulnerable of the major currencies at this stage appears to be the New Zealand Dollar. The return of community-based Covid-19 and an uber-dove=ish RBNZ this week has knocked the Kiwi off its perch. Having traced multiple daily tops out ahead of 0.6700 resistance, the NZD/USD has fallen to 0.6530 today in Asia. A close below 0.6500 this evening heralds are much deeper sell-off into next week. 

If the major currencies ascent versus the US Dollar has stalled and broken down into range trading, the same cannot be said for regional Asia currencies. Except for the Indonesian Rupiah, which continues to struggle versus the greenback, most of Asia continues to see consistent strengthening. The USD/CNY has fallen to 6.9470 this morning after another firm PBOC fix. While the SGD, MYR, THB and PHP are all trading near there recent highs against the US Dollar.

Regional Asia continues to be boosted by investor sentiment regarding the global recovery trade; however, many of them are now entering overbought territory on the relative strength indexes. Although lagging the move into consolidation and possible corrective territory by the major currencies, they will not be immune to negative movements in that space forever, should they occur. Investors should monitor the EUR/USD, particularly if it falls through 1.1700, for a signal that the party has stopped temporarily for regional Asian currencies.


Oil heads back into summer doldrums

The rally sparked by the US Crude Inventory data on Wednesday has fizzled out as fast as it began. Reflecting the sluggish nature of markets elsewhere, oil has given up most of those gains and slipped back into summer doldrum range-trading territory.

Brent crude eased 0.60% lower to $45.00 a barrel, and WTI fell 0.50% to $42.30 a barrel. Both contracts are sharply unchanged in Asian trading. Although both contracts continue to consolidate at the upper end of their two-month trading ranges, they lack the momentum to stage meaningful rallies at this stage. It would appear that oil has fallen off many investors’ radars for now, which may explain partially, the lack of volatility. 

Oils long hot sleepy summer looks set to continue for some time yet.


Fast money returns to precious metal longs

Both gold and silver outperformed overnight. Gold rose 2.0% to $1953.50 an ounce, and silver rose a mighty 7.60% to $27.4800 an ounce. Precious metals completely ignored developments in other markets, notably the firming of US yields. The ranges seen overnight imply that the fast money that was pummelled out of long positions earlier in the week, continues to dip its toes back in, establishing new long positions.

The nature of the FOMO crowd is that the positioning is not sticky. It will head for the exit door at the first sign of trouble, especially after the emotional onslaught it suffered on Tuesday. Both gold and silver, therefore, are still vulnerable to sharp dips at the first hint of trouble, be it negative headlines or substantial real money flows. 

Asian markets are moribund today, with both gold and silver unchanged at midday. Gold has nearby resistance at $1966.00 an ounce, with support at $1913.00 an ounce, the overnight low. Silver has resistance nearby at $27.7250 an ounce, with support at $25.2800 an ounce, the overnight lows. 

Like David Bowie, I was a hero, just for one day, by calling for lower gold and silver this week. Gold's next move is unclear at these levels, with the risks evenly balanced either way in the near-term. One thing is absolute, though, the remarkable volatility will continue, and investors will need deep pockets and a strong stomach.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

AUD/USD: Corrective advance intact while above 0.7065

AUD/USD stalls its corrective bounce just shy of the 0.71 barrier, as the bulls take a breather before the next push higher. The spot is holding above the critical support at 0.7065 amid the upbeat market mood-driven reduced haven demand for the US dollar. 


USD/JPY finally about to make the U-turn to 103s?

USD/JPY is under pressure as the US dollar is broadly sold off across the board. DXY has been telegraphing a downside correction for a number of days. Meanwhile, there has been a couple of domestic releases for the yen with the Bank of Japan Summary of Opinions.


Gold bulls catch a breather below $1,900

Gold eases from a four-day high of $1,883.08 flashed the previous day. Markets await fresh clues to extend the latest risk-on sentiment. Vaccine hopes, expectations of further stimulus keep the buyers positive but COVID-19 resurgence probes the bulls.

Gold News

GBP crosses catching a bid in Asia on Brexit hopes

There have been a series of news relating to Brexit and monetary policy to start the week which has been underpinning the pound. The latest news, reported by the Times, states that the ''European negotiators have indicated for ...

Read more

WTI slips below $40.50 amid US dollar recovery, API data eyed

WTI refreshed the intraday low after reversing from $40.79. US dollar regains upside momentum amid hopes of further stimulus. Challenges to the US-China trade deal add downside pressure on oil prices. API data, USD moves become the key amid a light calendar.

Oil News

Forex Majors