WIKIFX REPORT: Gold, Oil and EUR/USD Prices, Major Markets Go Risk-on

Released and expected Data

When the Markets await on 11th August at 4:30 pm UAE time the producer price index (PPI) of July.

It is noteworthy how important this data is because of its correlation with the Consumer Price Index (Inflation levels) ie, any rise in the former leads to a rise in the latter.

The other day, the US inflation report revealed a decline from 9.1% in June to 8.5% in July, thanks to the decline in oil prices. The CPI headline data may cool further in August with gasoline prices falling on 11th August in the United States to below $4 per gallon for the first time in several months.

Indices and Bond Yields

European and futures contracts of US indices extended their rally today following cooler-than-expected US CPI data released yesterday. The risk appetite has improved in the market as Investors expect a slower pace from the FED in hiking interest rates and a turn to rate cut between Q1-Q2 of 2023.

Fed members welcomed the decline in inflation levels, nonetheless, considered them “unacceptably high” and stated that the Fed will keep on hiking rates this year and possibly next year until reaching inflations target of 2%,

The spread between US 10-year yields vs 2-year yields retreated to 41 basis points, indicating that investors believe the Fed will continue hiking rates until the end of 2022 and ignore the economic recession.

Forex

The dollar index price retreated yesterday to its lowest level in over five weeks then steadied today. The Fed member Mr. Kashkari has stated that he wanted to see interest rates at 3.9% this year and 4.4% next year. This statement from a Dovish Fed member supports the dollar price and may slow down its downtrend and could turn it into a sideways move.

Technically, the dollar index prices closed below the 50-day moving average, and that suggests that the price may decline towards 103.83. on the other hand, a daily close above 105.42 opens the door to trading it towards 107.40.

The EUR/USD rallied yesterday to an over five-week high t 1.0368 albeit did not close above the 50-day moving average, highlighting market fears of the European-Russian energy crisis that could lead the European economy to a recession.

Technically, a daily close of EUR/USD above 1.0334 may send the price towards 1.0415 and a further close above this level could send the price even higher towards 1.0559. on the other hand, if the pair fails to close above 1.0415 this could encourage traders to press towards 1.0146.

Commodities

Gold prices rallied on 10th August on the back of the USD sell-off however rebounded at $1807/oz. The yellow metal benefited from the US dollar decline and from geopolitical tensions between China and Taiwan and rallied by 7% in 2 weeks however, the current Fed policy provides the Us dollar strong support and at the same time a strong resistance to the gold price.

Technically, gold prices are still trading above the 50-day moving average, hence it may retest 1807. A daily close above this level may send the price towards 1831. On the other hand, a close below the 50-day moving average located at 1787 may embolden traders to press towards 1765.

Oil prices stabilized today, awaiting the monthly report of the Organization of Petroleum Exporting Countries, OPEC. This report covers the most important factors affecting the prospects of the global oil market and developments during the next year, which affect supply and demand and price stability. It should be noted that oil prices retreated to pre-Ukrainian-Russian war levels on fears of a lower demand caused by the economic recession in the United States.

Brent Oil - Daily Price Chart

On July 21st, Brent crude price corrected higher and formed a higher low at 102.23. However, the sideways movement did not last long, as the price resumed its downward trend on August 4th after breaking the lower end of the price range that lies between 100.30 – 110.40. Since then, the price failed on multiple occasions to close within the mentioned price range hinting at a test of the February 18th low at 90.68. On the other hand, a daily close above the low end of the range may send the price towards the high end of it located at 110.40.