After printing fresh highs against most of its peers yesterday, the greenback finally took a breather on Wednesday and consolidated gains as investors await ADP employment report, Markit PMIs and ISM non-manufacturing. In the meantime, Swissquote research team shared their 4 October Daily Market Brief.
4 October Daily Market Brief: Dollar rally on pause
The ADP employment report is due for release this afternoon. Job creation expectations are relatively low for the month of September, mostly due to the negative effect on business confidence after the country was hit by a series of hurricanes. The market anticipates the US economy created 135,000 private job in the previous month, compared to 237k in July.
The ISM non-manufacturing is expected to edge slightly higher to 55.5 from 55.3 in the previous month. The second estimate of the services PMI should confirm the recent easing in business confidence in the service sector (55.1 first estimate).
Overall, the dollar consolidation suggest that investors are pocketing short time profit stemming from their long USD positions. The publication of a shortlist of potential Fed Chairman, regarding the possible removal of Janet Yellen at the head of the Federal reserve, which contains some candidates well-known for their dovish stance on monetary policy triggered profit taking across the board.
The uncertainty surrounding the feasibility of Trump’s tax reform also kept investors on the sidelines. Although we maintain our bullish view on the greenback, we do not ruled out short-term USD weakness.
Gold tumbles as geopolitical risks fade
The yellow metal has reached its 8-week low and is trading around $1275 which nonetheless remains at a strong level if we compare gold prices since the start of the year. Gold price began the year below $1200. The return so far of the precious metal is still very interesting well above 6%.
Markets are now less focus on the potential geopolitical risks between the US and North Korea. Central banks are back to centre stage and anticipation of further tightening could pressure down the yellow metal. The strong equities markets (in particular the US market) has pushed up the dollar which resulted in some gold weakness.
Our view is that we definitely believe that markets are too optimistic regarding the ability of central banks to tighten their monetary policy. Debts are way too important and increasing the cost of the debt would create major markets turmoil. We then continue to consider that central banks will likely let inflation run in order to kill it. This will definitely result in a gold appreciation within the medium-term. We maintain our bullish view on gold and reload longs as we should hit new highs soon.
This article ‘ 4 October Daily Market Brief ‘ was written by Arnaud Masset and Yann Quelenn, Market Analysts at Swissquote.
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