Gold Rebounds from Sharp Losses

Daily Analysis - 21/11/2017

Investors Eye Post-December Fed Clues


Gold prices reversed from the lows reached a session prior to climb in Tuesday Asian trade ahead of the release of minutes from the US Federal Reserve’s latest policy meet. With a December rate hike largely priced in, investors will be tuning in to gain insight into the Fed’s likely course of action after the next FOMC decision.

Yellen Departure Adds to Market Uncertainty

The Federal Reserve provided an upbeat appraisal of the economy when it concluded its two-day meeting on November 1st, bolstering expectations for fresh action on interest rates. Fed fund futures currently indicate a 91.00% probability that the Central Bank will adjust rates again in December. Upcoming minutes due for release on Wednesday could shed more light on the Fed’s views of inflation, which has been stubbornly low despite recent signs of a pick-up. Adding to market volatility is Fed Chair Janet Yellen’s announcement that she would resign from the Board of Governors once Jerome Powell is confirmed as her replacement. The fact that Yellen has now formalized her decision to leave has somewhat increased the level of policy uncertainty from an investor-standpoint, fuelling haven demand.  XAUUSD has reversed higher to $1,280.00 per troy ounce after tumbling -1.40% on Monday in its biggest one-day percentage fall since September 11th.


Draghi Touts Accommodative Policy as Necessary to Boost Wages

The Euro Area's economic recovery is "solid and broad-based," but the European Central Bank needs to keep the money tap open to generate “more dynamic wage growth,” per remarks delivered by ECB President Mario Draghi to European lawmakers. Draghi has been frustrated by how little workers have managed to raise their pay, primarily on account of the low inflation of the past few years, and argued that many of the factors holding them back were “transitory.” Speaking at the European Parliament in Brussels, Draghi warned that despite the improved economic outlook, inflation was yet to show “convincing signs of a self-sustained upward trend.” He however remained confident that falling unemployment would eventually induce price growth in region, even if there were few signs of it just yet. EURGBP has entered a short-term downtrend, with the pair currently hovering around 0.8850.


German Producer Inflation Contracts

Growth in factory gate prices for Europe’s biggest economy slowed in October according to data published by federal statistical agency Destatis on Monday. Producer prices advanced 2.70% year-over-year through the end of October, slower than a 3.10% rise in September, but in-line with the consensus estimate. The deceleration was largely attributed to lower energy prices, which edged 2.80% higher in October after soaring 4.90% year-on-year in September. The increase in heating oil prices also moderated significantly, dropping to 5.70% year-over-year after spiking 18.90% during the previous month. In monthly terms, prices were 0.30% higher, unchanged from September’s pace. The DAX 30 equity benchmark fought its way back into positive territory on Monday, closing near the highs of the session following a tumble by as much as 0.50% in early trade following the collapse of coalition talks in Berlin.


RBA Anxious About Wage Growth

Australia’s Central Bank warned of “considerable uncertainty” surrounding wage growth in the minutes of its November board meeting, signalling interest rates may stay lower for longer. Futures are currently pricing the timing of the next rate hike in early 2019.  The minutes came as the Reserve Bank of Australia slashed its forecasts for core inflation, which is currently lurking below its long-term target band of 2.00-3.00%, for another two years. Official figures released since the meeting showed wages increased at an annualized pace of just 2.00% in the third quarter, again disappointing policymakers’ hopes for a heightened acceleration. The anaemic growth in pay is hurting consumer spending and pressuring the retail sector, where sales witnessed an unexpected contraction during the third quarter. The AUDUSD pair was last seen around 0.7540, having slumped from atop 0.8000 in September.


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