FX Daily Strategy: Asia, Aug 6
A familiar story of waiting for an unclear deal, amid a neede-ly backdrop; dollar still slanted long and heavy
An argument that gold and especially silver poised for a breakout from base
Payrolls Friday next other focal point, largely mid-to-low tier data Thursday
In terms of the day ahead, the phrase ‘markets waiting for a deal to arrive’ could almost be programmed into a hotkey for writing the Outlook. Provocative moves by the Houthis added another dimension to the pressure pot. Brent is holding at back just below the $80 watershed level but still waiting to be convinced to cement that. As ever, there are so many breakable parts to the chain leading to an announcement, whether its US and Iran rhetorical jostling, or the substance of the deal under consideration.
The rumoured, if to be proven, outline has the US effectively conceding to Iran’s demands in large measure: all inbound on the Iran side, outbound on the Oman side, and the middle for both once cleared under terms to be agreed. In short, a 60-day transition to then sliding to toll/fees after? The question then is whether the US is really onboard a new setup or just kicking the can to the next argument.
In the meantime though, with the very long dollar positioning backdrop and following the recent intervention, the dollar is still prone to leak so long as risk holds up and the haven factor recedes. EUR/USD has 1.1560~ high of 3 August as resistance on this slight drift, needing to eventually clear to be testing back into 1.1585/16. USD/JPY meanwhile still seen with better supply into bounces within the recent wide parameters of last week’s spikes.
Stepping back from the daily news while we wait for US payrolls as the next big focal point, another theme we are watching at the moment is the potential for gold and especially silver to build off their recent bases to break out higher into a retracement move after the mass liquidation.
In brief, the argument is that chart technicals, seasonals, recent developments and market sentiment around events like intervention and the Fed meeting, the latest risk meltup, and approaching unconventional tail risk around the US election - these could all add up to a case for a decent bounce, whatever the longer-term holds. This is discussed in more detail in the report: ’Silver lining: a case for a precious metals retracement’ (here).
Thursday’s calendars are relatively quiet in the meantime. Germany has June industrial orders (mkt 0.3%), and Sweden flash July CPI seen remaining weak (mkt 0.6% from 1.3%, 0.3% from 0.4% ex energy).
The UK has the construction PMI (has been very weak, seen remaining largely so if off the lows).
The US sees weekly initial claims, which are likely to continue correcting from a recent low, and the Q2 productivity and costs report.