Mohicans markets：Waiting for the Fed to Signal More Rate Hikes Oil hits New Lows on Iran Nuclear Deal

Risk Warning:

☆Today, the U.S. will release the monthly rate of Retail Sale in July at 20:30. The market is currently expecting it to register 0.1%, which decimated from the previous value of 1%. Commerzbank expects that the retail sales data released today should confirm that the U.S. economy is still strong now. ☆At 21:30, Federal Reserve Governor Bowman will make a speech. In July, he had argued that multiple rate hikes of 50 basis points were more appropriate after September. Investors need to pay attention to his views on inflation and the Fed's subsequent pace of tightening. ☆At 22:30, the U.S. will also release the EIA crude oil inventories for the week until August 22. The market is currently expecting it to decrease by 117,000 barrels. This morning's release of U.S. API crude oil inventories for the week until August 12 recorded a decrease of 448,000 barrels, exceeding expectations for a decrease of 117,000 barrels.

Global Views - List of Major Markets

On Monday August 15, spot gold shocked to the downside and once fell toward the $1,770 barrier, eventually closing down 0.24% at $1,775.60 per ounce. Spot silver followed gold to the downside, closing down 0.65% at $20.14 per ounce.

The dollar index retraced most of its previous gains after failing to challenge the 107 mark in the U.S. session, recovering in late trading to close down 0.1% at 106.49. Ten-year U.S. bond yields eased after touching a daily high of 2.873%, which closed at 2.808%.

In terms of crude oil, the two oils showed a roller coaster ride. WTI crude oil rose more than 3% during the session, but failed to challenge the $90 mark several times. Then it fell in the U.S. session, down more than 2% at one point, and finally closed down 0.83% at $87.15/barrel.

The U.S. Dow closed up 0.67%, the S&P 500 closed up 0.49% and the Nasdaq closed up 0.19%. Retail and cruise concept stocks performed strongly, while hydrogen energy and solar energy sectors were the top losers. Wal-Mart and Home Depot closed up 5.1% and 4% respectively after the performance.

European stocks continued their upward trend, with Germany‘s DAX30 index closing up 0.66% at 13908.39 points. Britain’s FTSE 100 index closed up 0.40% at 7539.40 points. Euro Stoxx 50 index closed up 0.40% at 3804.85 points.

Precious Metals

In the early trading hours of Wednesday, August 17, spot gold fluctuated within a narrow range and is currently trading around 1774.32. Gold prices fluctuated little on Monday, the dollar rose and fell, and the decline of gold prices slowed down. The low on August 8 and the 1770 mark are still providing support to gold prices, and investors generally focused on the evening's U.S. retail sales data in July and minutes of the Feds meeting.

Because of its strong impact on market sentiment and sentiment, the U.S. retail sales data also has the common name of terrorist data that will also provide new clues for the consumers situation. The market currently expects retail sales in July to increase by only 0.1% compared with June, compared with an increase of 1% in the previous value, which is slightly biased to support the price of gold.

This trading day will also see the New Zealand interest rate resolution. The market is expected to measure a 50 basis point rate hike to 3.00%, which will be the fourth consecutive 50 basis point rate hike. Theoretically it will increase the opportunity cost of holding gold, being slightly negative for gold prices. However, the market has fully priced in a 50 basis point rate hike and any market reaction will be on the forecast path for the benchmark rate. Given that there are already signs of a slowing economy and falling house prices, the market and most economists are forecasting that the New Zealand indicator rate will peak at 3.50% in 2023 and then begin to fall back.

This trading day also needs to pay attention to the Fed Governor Bowmans speech, the UK CPI data for July and news related to the geopolitical situation.

   Fundamentals are mostly bullish

【U.S. Housing Starts Fall to Lowest in Nearly a Year and a Half in July】

【Russian Defense Ministry: concentrated fire strikes】

【State Department spokesman says Irans demand to lift sanctions on Iran“has no room for agreement”】

【Germany sends soldiers to the Balkans for the first time in 10 years】

   Fundamentals are mostly bearish

【U.S. industrial production hits a high record】

【Commerzbank: U.S. economy shows no clear signs of slowing down yet and the dollar is still in demand】

【The U.S. Dow and S&P 500 closed higher, hitting new intraday highs of more than three and a half months】

【U.S. Treasury yields climb as good results from retail giants suggest room for further Fed tightening】

In general, because the Federal Reserve raised interest rates by 75 basis points in July, and the recent views of Fed officials lean hawkish, minutes of the Feds meeting is more likely to be hawkish, which may support the dollar and depress gold prices in the short term. And if gold prices once fall below support near the 1770 mark, it may quickly fall towards the high on July 8 and the Bollinger Bands mid-rail double support near 1752.5. Conversely, if the Fed meeting minutes are less hawkish than expected and help gold recover resistance near the 10-day moving average at 1786, the bulls are expected to start a new round of gains.

crude oil

The U.S. oil is now trading at $86.82 per barrel in the early trading session on Wednesday, Aug. 17. Oil prices fell to a six-month low on Tuesday. This is because economic data has raised concerns that the global economy could fall into recession, while the market awaits the outcome of negotiations on the resumption of the Iran nuclear deal, which could allow Iran to export more oil.

Intraday focus on EIA data, the U.S. monthly retail sales rate in July, and minutes of the Feds meeting

   Positive factors affecting oil prices

【Datas released in early morning show the inventories of the U.S. crude oil fell 448,000 barrels last week】

【Explosion at Russian base in Crimea】

【S&P 500 closes higher, helped by stronger-than-expected results from Wal-Mart and other companies】

   Negative factors affecting oil prices

【The EU negotiate about the Iranian nuclear issue and the Iranian side replied to consultations with the U.S. and other sides】

【The U.S. housing starts fall to lowest in nearly a year and a half in July】

【Large gas importer commits to fully supply German liquefied natural gas (LNG) terminals】

【Barclays cuts the estimated price of Brent crude oil】

In general, the weak economic data raised a fear of dip recession. The EU negotiate about the Iranian nuclear issue and the Iranian side replied to consultations with the U.S. and other sides. Oil prices maintain a short tone until the final text of the Iranian nuclear deal is landed. The API data in the morning showed a decline in inventories, and EIA data will be released in the evening. If the data shows a further decline in inventories, oil prices may rally slightly in the short term. But the rise may be limited by restrictions because of the holding of the Iranian nuclear negotiations.

Foreign Exchange

On Wednesday, August 17, in early trading, the US dollar index fell slightly and is currently trading around 106.45. The U.S. dollar index was little changed on Tuesday, as investors awaited U.S. retail sales data to be released at 20:30 on August 17, Beijing time, and the minutes of the Federal Reserves July meeting to be released at 02:00 on August 18. Bank of America believes that the dollar may continue to rise against the yen. Investor demand for the U.S. dollar is likely to continue as the U.S. Federal Reserve's rate hike boosts the dollar-yen spread and hedging costs. Europe is battling an energy crisis, and the euro continues to come under pressure.

Due to persistently high inflation, market investors increased bets that the Federal Reserve will continue to raise interest rates aggressively. The dollar rebounded from a six-week low hit last week. The dollar index closed down 0.04% on Tuesday at 106.46. Trading has been choppy, however, as the Fed doesn't meet until Sept. 20-21 and more consumer price inflation and employment data comes before that, affecting the dollar index.

The euro fell to as low as 1.0122 against the dollar, its lowest since Aug. 3, before turning higher before closing up 0.12% at 1.0170.

The dollar closed up 0.67% against the yen at 134.21 on Tuesday.

The Australian dollar rebounded from losses earlier in the session on Tuesday and was last up 0.01% at 0.7022.

NZD/USD closed down 0.30% at 0.6344 on Tuesday.

USD/CAD closed down 0.47% at 1.2841 on Tuesday.

Major events to watch:

At 10:00 on August 17, Wednesday, the New Zealand Federal Reserve announced its interest rate decision and monetary policy statement. At 11:00, New Zealand Federal Reserve Chairman Orr held a monetary policy press conference, Financial Services speaks.

At 02:00, on August 18, Thursday, the Federal Reserve announced the minutes of its July monetary policy meeting.

International News

1. The Atlanta Fed lowered its forecast for U.S. third-quarter GDP growth.

2. U.S. President Joe Biden formally signed the Inflation Reduction Act on Tuesday, securing a major legislative victory ahead of the November midterm elections.

3. People familiar with the matter said that the European Union believed that Iran's response to the restart of the nuclear agreement was constructive. Oil prices fell immediately and reversed a 3% rise in the US market to a 2% decline. The EU is negotiating with the United States on this agreement.

4. The Russian Ministry of Economy expects Russias GDP to shrink by 4.2% in 2022.

5. Jinshi Data, August 16, according to the Syrian News Agency, on the 16th local time, the United States illegally stationed 65 oil tankers in Syria, full of oil stolen from oil fields in northeastern Syria, and passed through the illegal crossing point of Mahmoud and shipped to US military bases in Iraq.This is the second time the US military has stolen oil resources from Syria within 24 hours. On the 15th local time, the US military used 100 oil tankers to transport the stolen oil out of the country to Iraq.

6. German electricity prices hit record highs in October, December 2022, Q1 2023 and 2025.

Institutional Currency Viewpoint

1. ANZ: NZD/USD may be supported by a hawkish rate hike by the New Zealand Federal Reserve, but it cannot be sustained for a long time

①ANZ economists expect the New Zealand Federal Reserve's hawkish policy to have a positive impact on the New Zealand dollar against the dollar, but this impact may be short-lived. It's still too early to tell whether a rate hike by the RBNZ is a factor affecting the pair, but the market may be in the early stages of a return to the greenback's favor on safe-haven demand amid heightened concerns about global growth.

② Economists said that they still believe that the New Zealand dollar may strengthen tomorrow due to a hawkish interest rate hike by the New Zealand Federal Reserve, but there are many other factors, and the impact of interest rate hikes on the New Zealand dollar may also be short-lived. NZD/USD is expected to support at 0.6060-0.6290 and resistance at 0.6575-0.6660

2. United Overseas Bank: The euro against the dollar faces the risk of falling below 1.01, and the weakness is set or will continue

① UOB said that on the downside, a strong downward trend indicates that the euro may weaken further, but it is unlikely to continue to decline below the early August low of 1.0120. On the upside, a break above 1.0205 (minor resistance at 1.0185) would mean that the current weakness is set. Yesterday, we highlighted the current overbought condition and a weakening trend that suggests a reduction in the probability of the EUR reaching 1.0400. However, we did not expect a sharp sell-off, the euro fell below strong support at 1.0230 before plummeting to 1.0153 before closing weakly at 1.0160.

② A rapid improvement in the downtrend suggests that the euro could weaken further to 1.0120 and as low as 1.0095. In short, only a breakthrough of 1.0250 (strong resistance level) shows that the current weakness cannot be lowered to a lower EURUSD 1.01710%.

3. HSBC: U.S. dollar strength will continue, as it is still too early for the Fed to turn dovish

①The market's reaction to the July meeting of the Federal Open Market Committee and the consumer price index indicates that it is too eager to price a dovish Fed rate hike, and it is too early. HSBC economists see Fed tightening and associated dollar strength likely to persist until more evidence of slowing U.S. core inflation.

②The foreign exchange market still underestimates the importance of the current global economic slowdown. Given the greenback's “safe haven” status, the risk-off impact of this slowdown will continue to support the greenback.

4. Commerzbank: The U.S. economy shows no sign of slowing down yet, and the dollar is still in demand

① Commerzbank said the dollar should continue to be supported by the Feds aggressive rate hike cycle, as there are no clear signs of an economic slowdown. The U.S. could slip into a recession early next year, but it's still some distance away from the moment when the Fed needs to seriously worry about the state of the economy, Commerzbank FX analyst You-Na Park-Hege said in a report.

② There is also great uncertainty about how much the U.S. economy will weaken, so it seems premature to reflect the recession in the dollar. Commerzbank expects retail sales data due on Wednesday should confirm that the U.S. economy remains strong for now.

5. Westpac: NZD/USD will rise to 0.66 by year-end

①Our bank predicts that the recent period of market safe-haven transactions will give way to a weak dollar. It is expected that U.S. consumption and investment will slow down sharply in 2023, and the dollar will show a downward trend in the coming year. NZD/USD is expected to rise to 0.66 by the end of the year, supported by a weaker US dollar, with further gains next year.

②It is expected that AUD/NZD will remain near 0.90 before 2023. Affected by the slowdown in Australias economic growth, there is little room for an upward breakthrough NZDUSD 0.63450.02%.

6. ING Bank: It will not be until the fourth quarter that the Australian dollar is expected to rebound towards the 0.72-0.73 area

①Economists at ING Bank believe that it will take until the fourth quarter to see any rebound in the AUD/USD pair towards the 0.72-0.73 area.

②Although the Reserve Bank of Australia may be a relatively neutral factor for the Australian dollar for the time being, the downside risk continues to exist in the AUDUSD 0.7021-0.03% due to the possibility of new instability in the global risk environment.

7. Commerzbank: Sterling unattractive from an investor perspective

Analysts at Commerzbank said the pound is expected to remain under pressure as the Bank of England may be too cautious and the election of a new prime minister could make markets more nervous. The Bank of England is forecasting a recession next year, and worries about the economy appear to be preventing the Bank of England from implementing a truly aggressive monetary policy to fight inflation. From an investor's point of view, this would make the pound unattractive. And as long as the British foreign secretary, Truss, remains in the lead in the election, the pound is likely to continue to face depreciation pressure.

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