The FX markets have been dull so far this week as we lacked a major fundamental trigger out of the Europe and US. The Grexit scenario has taken a back seat for a while, although the Greek bond yield curve is still inverted (Grexit could make a comeback anytime). The only major story unfolding this week, is about the demoralized Gold bulls, after the metal fell to USD 1072/Oz on early Monday morning in Asia and has remained weak around USD 1100/Oz since then.
Rebound in Gold could be dollar bearish
While trading currencies, I prefer to view Gold as a currency rather than a precious metal. I view Gold as a currency – hard, with limited supply. Consequently, slide in Gold against the USD (fiat money) is an early indication that the USD is about to witness rally against other major currencies. If we look back in H1 2013, slump in Gold was followed by the sell-off in the emerging market currencies, who at that time were most vulnerable to fed taper.
But, I believe the sell-off witnessed in Gold this week does not point to a fresh USD rally ahead, since most of the currencies have already taken a beating against the USD in anticipation of a rate hike this year. This is evident from the relative resilience shown by other currencies this week against the USD, compared to Gold. But a sharp rebound in Gold would surely indicate a bear trend in the USD ahead.
RBNZ rate decision
The central bank is widely expected to cut interest rates by another 25 basis points to 3.00%. The Kiwi has been sold aggressively since last month’s rate cut. So a 25 basis point rate cut is pretty much priced-in. Hence, doors are open for a technical correction to 0.6791 (23.6 Fib% of May-July fall). However, that would require support from commodities – Gold and milk prices (in case of NZD). We may be in for a surprise if the central bank expresses discomfort with the pace of depreciation in the NZD. In this case, the Kiwi appears most attractive against the CAD and AUD (the AUD/NZD is hovering just above hourly 200-MA now).
UK retail sales
In my opinion, the retail sales is the most important figure in the UK (& US), and any other economy heading towards an interest rate hike. Fast pickup in retail sales indicates two things – Economic health, as the basic law of economics is at work – anticipation of a rise in borrowing costs leads to preponment of consumption and positive effect of labour market gains and a rise in wages.
For the economies heading towards an interest rate hike, it is very essential that we see signs of a sharp pick up in retail consumption, only then it is safe to assume that the economy is more likely to sustain the rise in rates. The market expects retail sales in the UK to have grown by 4.9% y/y and 0.3% m/m in June. Core retail sales are also seen rising at a faster rate in June as compared to May. A better-than-expected figure could be bullish for GBP/USD (especially as the retail sales in the US have been anemic).
Rebound in Gold could be dollar bearish
While trading currencies, I prefer to view Gold as a currency rather than a precious metal. I view Gold as a currency – hard, with limited supply. Consequently, slide in Gold against the USD (fiat money) is an early indication that the USD is about to witness rally against other major currencies. If we look back in H1 2013, slump in Gold was followed by the sell-off in the emerging market currencies, who at that time were most vulnerable to fed taper.
But, I believe the sell-off witnessed in Gold this week does not point to a fresh USD rally ahead, since most of the currencies have already taken a beating against the USD in anticipation of a rate hike this year. This is evident from the relative resilience shown by other currencies this week against the USD, compared to Gold. But a sharp rebound in Gold would surely indicate a bear trend in the USD ahead.
RBNZ rate decision
The central bank is widely expected to cut interest rates by another 25 basis points to 3.00%. The Kiwi has been sold aggressively since last month’s rate cut. So a 25 basis point rate cut is pretty much priced-in. Hence, doors are open for a technical correction to 0.6791 (23.6 Fib% of May-July fall). However, that would require support from commodities – Gold and milk prices (in case of NZD). We may be in for a surprise if the central bank expresses discomfort with the pace of depreciation in the NZD. In this case, the Kiwi appears most attractive against the CAD and AUD (the AUD/NZD is hovering just above hourly 200-MA now).
UK retail sales
In my opinion, the retail sales is the most important figure in the UK (& US), and any other economy heading towards an interest rate hike. Fast pickup in retail sales indicates two things – Economic health, as the basic law of economics is at work – anticipation of a rise in borrowing costs leads to preponment of consumption and positive effect of labour market gains and a rise in wages.
For the economies heading towards an interest rate hike, it is very essential that we see signs of a sharp pick up in retail consumption, only then it is safe to assume that the economy is more likely to sustain the rise in rates. The market expects retail sales in the UK to have grown by 4.9% y/y and 0.3% m/m in June. Core retail sales are also seen rising at a faster rate in June as compared to May. A better-than-expected figure could be bullish for GBP/USD (especially as the retail sales in the US have been anemic).