Yield Curve Inversion Sends Panic Across the Markets

Risk appetite waned on Wednesday after the 10-year treasury yields fell below the 2-year treasury yields. The inverted yield curve set off panic among investors. As a result, they rushed to safe-haven assets. This came just a day after the equity markets were seeing some kind of recovery. The inverted yield curve once again reminded investors about slowing economic growth and a possible recession.

 

Euro Slips as Eurozone GDP Confirmed at 0.2% in Q2

The euro currency was seen trading weaker on the day. Eurozone’s second-quarter GDP was confirmed rising by 0.2% in the second quarter of the year. This was an unchanged print from the flash estimates. Germany’s GDP was seen contracting 0.1% in the second quarter of the year. The slowdown was attributed to the cooling export markets due to the trade dispute with the US.

EURUSD Dips to Lower Support

EURUSD was seen easing lower on the day as it broke out from its range. The euro currency fell to the lower support at 1.1140 and is seen testing this level at the time of writing. We expect this support level to hold in the short term. Failure to hold the declines could send the euro lower to the previously established lows at 1.1028.

UK Inflation Rises Slightly Higher than Expected

Inflation data for the UK showed a modest increase. Headline inflation rose 2.1% on the year ending July 2019. This was slightly above estimates of a 1.9% increase and up from 2.0% registered in the month before. Core inflation was seen inching from 1.8% to 1.9% in July on the year. The data, however, failed to move the sterling higher on the day.

GBPUSD Maintains its Flat Range

The GBPUSD currency pair continues to remain trading within the established range of 1.2082 and 1.2026. The descending wedge pattern remains in play, however. This indicates a possible breakout to the upside. This bias holds as long as GBPUSD doesn’t break down below the 1.2026 level where the previous lows were established.

Gold Advances Higher as Risk Appetite Fades

The previous metal was seen rising slightly higher on the day by Wednesday’s close. However, the gains in the precious metal were rather muted. Gold prices failed to advance on the rising risk aversion, which could possibly indicate that a top has been formed. Economic data from the US was also limited, keeping gold prices in check.

XAUUSD Has Likely Formed a Top

Failure to post higher highs on the back of the recent risk aversion gives rise to the view that gold prices might be forming a top. After rising to a fresh six-year high at 1532, gold failed to rebound above this level. While support has been established at 1494, failure to post higher highs could signal a possible consolidation or a move lower. Watch the support at 1494 which could give further clues. A close below this level could signal further declines in gold prices.