Safe havens and a weaker dollar

Gold extended its recent rally to a third day in Asia, advancing to the highest since May 2013 in early trading. An escalation in tensions in the Middle East yesterday fuelled gold’s breakout from a triangle pattern that had been forming since June 25.

In addition, the uber-dovish comments from Fed’s Williams yesterday increased speculation of a deeper 50bps rate cut at this month’s meeting, which put pressure on the US dollar to the benefit of the precious metal.

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Gold Daily Chart

Williams clarifies comments

Yesterday’s comments, which raised the probability of a 50 bps rate cut to 40% from 35% the previous day, were clarified by a spokesperson earlier this morning, who said that the comments were not about potential policy action, but more an academic speech on 20 years of research.

As a result, gold reversed its early advance to trade in the red as the dollar regained some ground.

Equities continue higher

Equity indices all traded higher this morning, seemingly immune to the escalation in tensions in the Gulf and the clarification of Williams’s comments. US indices rose between 0.11% and 0.23% while China shares climbed 0.95%. Hong Kong shares out-performed with gains of 1.26%.

Currencies traded a bit more conservatively, with AUD/USD falling a modest 0.12% to 0.7066, USD/JPY rising 0.21% to 107.53 while EUR/USD slid 0.13% to 1.1262. GBP/USD consolidated yesterday’s big gains, the most since May 3, but still faces losses on the week.

GBP/USD Daily Chart

A quiet end to the week

The data calendar winds down quite rapidly into the weekend, with June German producer prices and the Euro-zone current account balance for May the main events on the European slate. Producer prices are expected to fall 0.2% m/m and gain 1.4% y/y, both of which are lower than the previous month.

The North American session features Canada’s retail sales data for May, with a mild increase from +0.1% m/m to +0.3% m/m seen. July’s US Michigan consumer sentiment index for July probably improved to 98.5 from 98.2, the latest survey shows, but yesterday’s massive beat by the Philadelphia Fed index could imply an even better number. A speech from Fed’s Bullard rounds off the week.

 

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