Gold cheapens despite US government shutdown, EUR mixed

The US government is closed for the third day as the US senators departed without an agreement on government funding on Sunday’s vote. Senate Majority Leader Mitch McConnell announced to hold a vote for a stopgap funding bill today at noon. Yet there are significant discrepancies among the US lawmakers. Immigration, among other issues, should be agreed on to keep the government running until February 8. And that’s by no means a done deal. If the spending-bill impasse continues, McConnell said it would be his intention ‘to proceed to legislation that would address DACA, border security, and related issues’.

The US 10-year Treasury yield held ground above 2.6445% in Asia, near the highest levels since mid-2014. The US dollar began the week on a negative note, yet gradually recovered approaching the European market open.

Gold traded above $1’328 in Asia as the US government shutdown encouraged investors to remain seated on safe-haven assets. But the empirical data shows that gold prices tend to fall during US government shutdowns. Hence, the US turmoil may again not benefit to gold this time around.

In Germany, the political tensions will likely ease as Social Democrats backed formal coalition talks with Chancellor Angela Merkel to form a grand coalition. Merkel’s CDU/CSU and SPD are expected to begin detailed policy talks as soon as Tuesday.  

The European Central Bank meeting will be the major highlight of this week. Eurozone policymakers are expected to maintain the status quo on Thursday’s meeting. But investors will be focused on the accompanying statement, amid rising speculations that the ECB may change its language on forward guidance to focus less on asset purchases. The ECB’s December meeting minutes had spurred expectations that the bank could revisit its communication stance in early 2018.

The EURUSD advanced past 1.2320 last week, but failed to consolidate gains above the 1.23 mark, hinting that the euro-bulls may start worrying about the actual levels. If Mario Draghi delivers a less hawkish speech on Thursday’s press conference, this could trigger a minor unwind in the long euro positions this week. The euro edged lower from 1.2275 to 1.2214 versus the US dollar in Asia. The slide could stretch to 1.2200 mark, 1.2140 (minor 23.6% retracement on November – January rebound) before the meeting, but the euro-positive narratives could help the currency ending the week sideways. The critical support is 1.2028 (major 38.2% retrace), which should distinguish between the continuation of the positive euro trend and a mid-term bearish reversal.

Energy markets edged higher on Monday, as Saudi and Russian energy ministers hinted that the oil cut agreement could extend beyond 2018 in a joint interview on Bloomberg television. Russian Energy Minister Alexander Novak said that “the world’s two biggest oil producing and exporting countries can continue their cooperation for the good of the crude industry, for the good of stability”.  

WTI Feb 18 futures traded at $63.63. Brent crude futures neared $69.00 a barrel.

Natural gas futures rose by 1.95%. The cold winter in the US is heating up the natural gas prices, as gas stockpiles fell twelve percent below the five-year seasonal average.