US Election candidates ramp up campaign rhetoric, renewed gold investment pushes up prices

Market Recap 9/1

Global equity market

(Source: KVB PRIME)

US stock indices varied yesterday –the Dow Jones opened low and went lower by 1%, the S&P 500 was weak and the NASDAQ followed the lead of technology stocks. By closing, the Dowwas down by 0.78% at 28430.05, the NASDAQ closed up 0.96% at 12110.7 and the S&P 500 closed down 0.22% at 3500.31.

The European equity market was generally lost; the DAX closed down 0.67% at 12945.38 and the FTSE closed down 0.61% at 5963.37.

China’s equity market concluded a reconsolidation phase - the Shanghai Stock index closed down by 0.154%, theSZSE Component Index closed down by 0.063% and the GEM index opened higher than the day before but eventually went lower by 1.07%.

Precious metal forward contracts

Gold was strong during Asian market - hitting $1976 with a $15 boost - but went back to 1954 afterwards. During the Europeanmarket time, its price climbed to $1970 and closed at $1967.80 – marking a0.25% increase.

Sliver opened high and went higher with a 3% increase during the US sessionand closed up by 2.35% at $28.13 per ounce.

Crude oil forward contracts

WTIperformed strongly yesterday: theprice hit $43.54 but dropped to $42.54, closing at $42.8.

Brent oil went in asimilar direction, hitting daily highs during the European session at $46.5. Brent ultimately closed down by 0.65% at $45.56 per barrel.

Currency forward contracts

·        USDXdown to92.15 (-0.065%)

·        EUR/USDup to1.19375(0.234%)

·        GBP/USDup to1.33655(0.097%)

·        AUD/USD up to 0.7373(0.096%)

·        NZD/USDdown to0.67351 (-0.052%)

·        USD/CAD down to1.30392 (-0.345%)

·        USD/JPYup to105.873 (0.459%)

Global Fundamentals

United States

Federal Reserve Vice Chairman Richard Clarida left open the possibility of implementing Treasury yield caps at some point in the future, though he indicated it’s not likely for now and reiterated the US central bank’s rejection of negative interest rates.

Claridaalso said policy makers might offer ‘refinements’ to their Summary of Economic Projections -a quarterly document that outlines their economic outlook and projections for rates - in light of the framework changes announced last week by Fed Chairman Jerome Powell.

Meanwhile, Tesla stocks jumped as much as 12% during its first day of post-split trading on Monday.The electric vehicle maker announced on 11^thAugust that it would enact a five-for-one stock split, and begantrading at the new price on Monday. So far, shares are up more than 470% this year.

Europe

European Central Bank (ECB) economist Isabel Schnabel revealed that the EU bank’s policies had beencalibrated based on the June projections. Notably, theyhad a big increase in the scope of the pandemic emergency purchase programme (PEPP) around that time due to a very subdued inflation outlook; the policies are primarily data-driven.

The ECB reiterated that as long as the baseline scenario remains intact, there is no reason to adjust the monetary policy. Of course, these projections will play an important role going forward, but at the moment the PEPP envelope looks appropriate.

Crude Oil

Goldman Sachs predictsthree-year Brent oil futures will increase to $58 per barrel by the end of 2020 and that theBrent oil price will increase from $45 to $65 per barrel by Q3 2021.

The USEnergy Information Administration (EIA) stated that demand for oil has dropped by 15.6% to 3.21million barrels per day comparing to the same time last year.

In May, demand dropped by 21% and exports dropped to 2.92mil barrels per day. In June, oil exports have also fallen to 2.75million barrels per day.

Today’s currency forecast

GBP/USD

The pound followed our prediction and reconsolidated at 1.330, which provides uswith a 45-pip profit margin. The price nowlooks set to keep rising today.

Intraday, the reconsolidation phase will likelycontinue- thoughfor a mid-term layout, we would like to suggest longing both the GBP and EUR since the USD will remainweak, targeting at 1.338.

However, it should be noted that US election developments might strengthen the USD. 

[GBP/USD, four-hour chart] (Source: KVB PRIME)

AUD/USD

Commodity prices preserved the strength of the Australian dollar even though the AUD/USD pair has been overbought over the last two days; this can be seenas the current amplitude is 33% more than last month’s average.

The price movement was not as our prediction would have suggested, as it has remained high without reconsolidation.

Participating in the AUD is not recommended today, even as commodity prices remain strong. Instead, traders would be safer to observe today’s trends with a view to placing new positions later in the week.

[AUD/USD, four-hour chart] (Source: KVB PRIME)

Gold

The gold price is closely following our strategy; the positions opened around $1953 will have gained $16 so far. The price movement shows that many investors are building up their long positions on gold again: the price is pushed up solidly.

For short -term placements, the $12-15 price range will be our target. Opening new positions after a reconsolidation to $1965 - which may happen during the European session - will be our preferred strategy. 

[XAU/USD, four-hour chart] (Source: KVB PRIME)

USD Index

Another successful strategy from yesterday. The USDX kept dropping after a price drawback to $92.45, which captured over $0.60 of profit. Now, closing positionswill be our first step since the USDX might climb back during theEuropean trading hours.

Further short placements around $92 would be ideal today; so far,the US election candidates are largely remaining vague in their policies rather than announcing any real action, so the USDX could stay weak for a while.

[USDX, four-hour chart] (Source: KVB PRIME)