Highlights:
- USD slips on wholesale inflation measure (PPI) while JPY strength accumulates
- Commodity FX (notably NZD and CAD) continues to be sold against havens
- Crude oil turns aggressively lower in late trading despite improving demand
- Sentiment Highlight Gold price outlook turns positive per sentiment
Momentum is a force that is rarely worth fighting but can be a key advantage for those who choose to follow in its footsteps or on its back. Recently, we have seen a flip of momentum that carried currencies higher like CAD, which has stalled in the upper-teens, and commodity currencies like the Canadian Dollar or New Zealand Dollar. The Canadian Dollar has found that the key driver of its strength, namely the pricing in of increasingly tighter expected monetary policy from the Bank of Canada being priced in is not advancing at the pace that led to such strong gain from May to July. The New Zealand Dollar is reeling from a threat of possible intervention from the RBNZ who changed their language on Thursday morning when they said a lower NZ Dollar would be needed as opposed to prior language noting it to be helpful.
Two forces that have maintained is a weak USD, albeit a less weak USD than we have recently seen and a strong JPY. The strong JPY brought USD/JPY down to the lowest level since June, and NZD/JPY fell 1.5%. The strength in JPY shows that geographic risk (close to threatening North Korea) is being eschewed in favor for repatriation. The weak USD, while nothing new, was today blamed on the first drop in 11-months, which is evidence that the need for additional policy tightening from the Fed is lacking.
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Crude Oil failed to respond to two positive fundamental developments on Thursday, turned lower from $50/bbl, and ended the day down nearly 2%. Both positive developments were centered on increasing demand first with OPEC boosting oil-demand outlook while at the same time saying that Saudi Arabia and Iraq, the two largest OPEC producers have agreed to a stronger commitment to further oil cuts. Additionally, calendar spreads for both Brent crude and WTI showed further signs that demand is improving while the glut is reducing as evidenced by the backwardation. Backwardation happens when near-term oil prices are higher than those for delivery in the future, which encourages those with physical barrels to sell now. The opposite of backwardation is Contango, which we’ve strongly rebounded from since earlier in the summer.
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FX Closing Bell Top Chart: Crude Oil consolidates above price channel resistance, favoring bullish outlook
Chart Created by Tyler Yell, CMT
Tomorrow's Main Event: USD Consumer Price Index (YoY) (JUL)
IG Client Sentiment Highlight: Gold Price Outlook Turns Positive per sentiment
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.
Spot Gold: Retail trader data shows 62.0% of traders are net-long with the ratio of traders long to short at 1.63 to 1. The percentage of traders net-long is now its lowest since Mar 31 when it traded near 1248.9. The number of traders net-long is 1.1% lower than yesterday and 11.3% lower from last week, while the number of traders net-short is 25.3% higher than yesterday and 45.2% 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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