Highlights:

  • Dollar breakdown extends after Yellen’s Jackson Hole speech favoring regulation over growth
  • Hurricane Harvey sending commodity markets in different directions, Gold price jumps
  • EUR/USD looks set to test 1.2000 if ECB does not stand in its way
  • Sentiment Highlight Gold prices look likely to rally further

We are slowly entering a time of increased seasonal volatility and the turn into September next week is sure to add a spark like we haven’t seen in sometime. On Sunday’s open, the market will begin to price in fully any ramifications from Jackson Hole. The initial take away of focus was that Janet Yellen might have effectively turned in her 2-week notice as she favored holding off on deregulation in her speech. Such a view doesn’t seem to be that of a ‘team player’ to the Trump administration when she is up for reappointment in February of next year.

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In addition to pricing in Jackson Hole ramifications, the damage, or hopeful lack thereof from Hurricane Harvey will likely provide a good deal of volatility for Crude Oil and Gasoline. The irony that many traders are grasping is that the Hurricane is a threat to demand of Crude Oil, which has come from refiners that are situated along the gulf coast, and not the production or supply of Oil, which is safely tucked away in West Texas. The supply from Eagle Ford Shale in south central Texas is not expected to be affected due to the relatively weak strength of the Hurricane once on land. The takeaway is that any disruption to refiners could weaken demand while supply stays high and could put further pressures on the price of Crude Oil.

In addition to Jackson Hole, next week will kick off with Brexit talks on Monday, which so far has led to persistent GBP weakness. This week, GBP saw its lowest close to the EUR since 2009, and further weakness could persist if negotiations weaken further. On Thursday, markets will close the month of August with a final taste of US inflation via the Personal Consumption Expenditure number, which is the Fed’s preferred method of inflation data followed by Friday’s ever-important US nonfarm payroll data. The US Data has been weak and consistently disappointment. Therefore, next week’s data will be looked as a validation of the bears or a possible short-covering parade if US economic data surprises to the upside.

Keep an eye on our economic calendar for Economic Data Points

On the charts, two key focal points will remain EUR/USD, which could benefit mightily from a freshly weak USD. Further USD weakness as seen in DXY would likely provide a clear path for EUR/USD to approach 1.2000. Another benefactor of a weak USD would be the price of Gold. Gold has struggled near the YTD high close from April. A new closing high would likely embolden commodity traders that have recently seen base metals trade consistently higher week on week for the longest run since 2006.

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FX Closing Bell Top Chart: DXY breaks aggressively lower from bear flag pattern

US Dollar Tanks Taking EUR/USD Near 2017 Highs, Gold Price Jumps

Chart Created by Tyler Yell, CMT

Next Week's Main Event:USD Change in Non-farm Payrolls (AUG)

IG Client Sentiment Highlight:Gold Price Looks Likely to Rally Further

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

US Dollar Tanks Taking EUR/USD Near 2017 Highs, Gold Price Jumps

Spot Gold: Retail trader data shows 61.0% of traders are net-long with the ratio of traders long to short at 1.56 to 1. The number of traders net-long is 5.1% higher than yesterday and 2.1% higher from last week, while the number of traders net-short is 5.9% higher than yesterday and 11.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long (emphasis added).

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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