Gold sold off dramatically to start the week dropping over $50.00 per ounce before bouncing back a bit and trimming its Monday loss nearly in half. There are a number of factors that have come together to send gold down the drain, two of which may also influence trading in JPY.
1) Reduced demand for defensive havens:
Gold has historically been seen as a store of value and a haven for capital in times of tension, at the moment, however, the pendulum has swing
back the other way.
With Greece passing austerity measures last week, receiving bridge financing to meet its immediate obligations and reopening its banks (although capital controls remain on and the Athens stock exchange remains closed) the risk of an imminent Grexit has passed for now. Negotiations on a third bailout package are about to get underway and with Germany hinting at the potential for debt relief over the weekend in exchange for more reforms, the crisis phase appears to be passing although it could return or something else could pop up down the road (there is the potential Greece could have another election this fall and Spain plus Portugal are already on the schedule for later this year).
Political tensions around the world also appear to be easing with the completion of the Iran nuclear deal and the US burying the hatchet reopening diplomatic relations with Cuba today.
Chinese markets continue to stabilize and fears about its economy have eased following last week’s better than expected GDP, industrial production and retail sales figures.
2) US interest rate liftoff and USD rally
Gold is priced in USD and often trades in the opposite direction from the world’s premiere paper currency. The risk that financial crises in Europe and China could spiral out of control and upset the world economy has eased dramatically in the last week, keeping the Fed on course toward interest rate liftoff.
Last week, FOMC Chair Yellen indicated in testimony she still expects rate liftoff this year, while this morning St. Louis Fed President Bullard indicated he sees the odds for a September liftoff above 50%, pushing USD higher against other currencies.
Like gold, JPY is often seen as a haven for capital in turbulent times but with fears of global economic and financial meltdown fading, JPY has been falling back, particularly relative to the rising USD. JPY has continued to gain against EUR and even gold for that matter, indicating that JPY could perform differently against different currencies
Stock markets in the US and Europe finished higher on the day sending more positive momentum into today’s Asia Pacific session. Crude oil tumbled again with WTI breaking $50.00 as traders prepare for Iran to return to the world market amid a market share war among major producers. The economic calendar has dried up for the moment, putting the focus on earnings with Apple reporting tomorrow.
AUD and NZD have been trying to regain their footing and could be active on today’s RBA minutes. With the Bank of Canada, Norges Bank and the RBNZ all having cut rates at their last meeting, traders may be looking for hints as to whether the RBA is truly done or if the door remains open to more stimulus.
IBM $3.84 vs street $3.79, maintains full year EPS guidance of $15.75 to $16.50 and modestly raised cash flow guidance
Canadian National $1.15 vs street $1.05,
Significant announcements released overnight include:
UK Rightmove house prices 5.1% vs previous 4.5%
Upcoming significant announcements include:
11:30 am AEST Australia RBA minutes
3:00 pm AEST Japan leading index previous 106.2
1:00 pm BST Hungary interest rate 0.10% cut to 1.40% ex
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