Recent developments have put market participants in a difficult situation, wavering whether the US-China trade war as well as current geopolitical headlines or the publication of Fed minutes in a context of weakening economic activity should prevail. In this context, demand for the bullion remains tight as it remains above the 1500 range, set for a rebound in the event of limited breakthroughs in trade talks starting tomorrow. Meanwhile, the coming release of the FOMC Minutes could allow the greenback to rebound if Fed easing goes below market expectations of an October rate cut.

Concerns of slackening economic growth in the US economy following the release of disappointing business activity indices from the Institue for Supply Management of manufacturing and non-manufacturing activities respectively have been weighing on the USD since the start of last week, as speculations of further Fed rate decrease following two 0.25 percentage point cuts in July and September escalated. Yet despite growing implied probabilities rising from 72.90% last week to 82.20% for a rate decline, it appears that the Fed Minutes could well deceive investors as signs of a major split among policymakers (keep in mind that only seven out of 17 policymakers were considering a third rate easing at September meeting) could force analysts to cut back their forecasts for 30 October 2019 meeting. Instead, Fed members should announce a resumption of bond purchases for the coming periods. On the trade front, it seems that ministerial negotiations are expected to be tense following the latest announcement by the State Department to restrict visas to certain Chinese officials while prohibiting Chinese AI companies from buying products from US companies without prior approval from the US government. In addition to tariffs that are expected to increase from 25% to 30% on $250 billion of Chinese imported goods on 15 October 2019, rumors of potential restrictions on capital flows to China, initially targeting US government pension funds, may well emerge, causing major disruptions on EM assets.

In current circumstances, we would favor a short EUR/USD bias as upcoming Fed Minutes could provide USD a boost, thus putting EUR/USD, currently trading at 1.0978, along the 1.0880 range.

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