The death of Maradona saddens us and it's a reminder that even the greats fall, whether it be in football or FX. On that note, the dollar lagged again Wednesday despite a risk averse tone while the kiwi led the way. A wave of US economic data ahead of the holiday highlighted several continuing trends, which we explore in today's note. The chart below raises doubts over gold's direction in absolute and relative terms.
1) Housing boom
The boom in housing isn't a uniquely American phenomenon but it's heating up quickly there. New home sales in October rose 999K compared to 975K expected. The prior was also revised higher and sales are up 41% y/y.
This is a secular trend but also highlights the greatest power of all in financial markets: interest rates.
2) Trade
One of Donald Trump's most powerful promises was to improve US trade but the October trade balance report showed that even Presidents can't break the rules of economics. There was an $80.2B deficit, which was nearly in-line with estimates but the larger picture is a declining trend from roughly $65B monthly deficits when he took office. That steady flow of money out of the US is a powerful force and a long-term dollar drag.
3) The power of government spending
The US, UK and Canada are the three biggest spenders during the pandemic with outlays of 14-18% of GDP. That spending kept a human tragedy from turning into an economic one but in the US at least, the money is beginning to dry up. Wednesday's PCE report showed income dropping a surprise 0.7% versus +0.4% expected. On the flipside, there's renewed talk of US student loan forgiveness.
4) Manufacturing strength
We're still in the dark about the underlying strength of the manufacturing sector. We recently got two Fed reports that showed some softening but core manufacturing orders and shipments in the October durable goods report were strong. One of the big surprises of the pandemic has been how well that sector has held up but whether it continues is an equally big question mark.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
AUD/USD hovers around 0.6500 amid light trading, ahead of US GDP
AUD/USD is trading close to 0.6500 in Asian trading on Thursday, lacking a clear directional impetus amid an Anzac Day holiday in Australia. Meanwhile, traders stay cautious due ti risk-aversion and ahead of the key US Q1 GDP release.
USD/JPY finds its highest bids since 1990, near 155.50
USD/JPY keeps breaking into its highest chart territory since June of 1990 early Thursday, testing 155.50 for the first time in 34 years as the Japanese Yen remains vulnerable, despite looming Japanese intervention risks. Focus shifts to Thursday's US GDP report and the BoJ decision on Friday.
Gold price treads water near $2,320, awaits US GDP data
Gold price recovers losses but keeps its range near $2,320 early Thursday. Renewed weakness in the US Dollar and the US Treasury yields allow Gold buyers to breathe a sigh of relief. Gold price stays vulnerable amid Middle East de-escalation, awaiting US Q1 GDP data.
Injective price weakness persists despite over 5.9 million INJ tokens burned
Injective price is trading with a bearish bias, stuck in the lower section of the market range. The bearish outlook abounds despite the network's deflationary efforts to pump the price. Coupled with broader market gloom, INJ token’s doomed days may not be over yet.
Meta Platforms Earnings: META sinks 10% on lower Q2 revenue guidance Premium
This must be "opposites" week. While Doppelganger Tesla rode horrible misses on Tuesday to a double-digit rally, Meta Platforms produced impressive beats above Wall Street consensus after the close on Wednesday, only to watch the share price collapse by nearly 10%.