Outside of the JPY, which is being consumed as one of the few viable hedges left for the market to digest, the FX markets treaded water overnight. Still, the street is relatively short dollars and nowhere near hedged short enough on the VIX, so I think the dollar will be in demand for safe have purposes.
EURUSD strength can be mainly attributed to USD weakness rather than EUR strength, so with risk losing traction Euro could look to move lower.
I would expect to see a pullback in the ringgit today on the back of weaker global risk sentiment after the New York City schools announcement.
Not great news for the ringgit either is that Oil prices slipped as traders need to hedge against falling back into the Covid -19 doom loop and where traders may start to write off the holiday season possibly.
Gold remains under pressure
Gold is under pressure as more good news in the form of vaccine developments hit the wires. There was no “panic” behind last week’s sell-off; it was a clear transfer of ownership from weak hands to strong, which remains the case.
However, gold traders will need to be on the lookout for safe-haven US dollar demand.
There are some green shoots from the physical side of the street. The Singapore Gold Exchange discount has narrowed, touching $13 against London, which is the lowest since mid-June.
Gold demand in Thailand is notable and can be a good bellwether of a Chinese market recovery.
Strategic gold longs are reluctant to cut at current levels, and fast money is reluctant to instigate fresh shorts as the macro/stimulus story has not changed.
However, I do not think your non-typical gold investors, a huge component of the enduring gold rally, are comfortable being speculatively long Gold with more vaccines in the pipeline based on ETF’s continued bleeding holdings, which are down 1.4 mn oz.
In sum, physical provides temporary support, but we need a reversal of ETF flows (and for crypto to run out of steam) for Gold to recover towards 1900.
News of another vaccine is most welcome but is intuitively negative for bullion prices. Moderna’s report suggests that other vaccine candidates could elicit a similar degree of efficacy and have the same intuitive result on gold prices. Yields will surge at some point, so the question is, will the US Fed be there to backstop the rise to any significant degree.
Gold is still caught between the conflicting narrative of surging COVID19 cases and vaccine news. Despite being supported by financial fragility and ongoing Fed policies, the yellow metal still faces an uphill battle to rally.
Crypto: It’s not just FOMO or YOYO
The crypto world is a lot less lawless and maniacal these days.
There are clearer signs that crypto is becoming a viable emerging asset class by the month and just not a hedge for the currency debasement story.
There is a far more sophisticated player in the market that reduces the element of the wild west nature of the game.
Indeed, with more HFT and hedge funds participation, it brings a soothing effect to the market as not only does a higher level of risk management comes to the fore, but investors feel better knowing that strong hands are there for support.
Of course, there will always be a huge uptick on volatility, like any other asset class, as price discovery takes over when markets move above recent fresh highs.
Although you can read a gazillion opinions on why Coins have gone moonshot, one thing is for sure, with pandemic-induced lockdowns forcing people to shop online, the rapid digitization helps matters greatly.
With pandemic-induced lockdowns pushing people to shop online, the shift to cashless societies is moving forward rapidly, and that may bode well for digital money in whatever form it takes.
Indeed, this is the bread and butter for blockchain technology, which should ultimately speed up the transaction process and where bitcoin is so intrinsically interwoven.
As the world continues to move deeper into the new age of global electronification and digitization, bitcoins could be in huge demand. The big problem is there is only a finite number available.
FX, Gold & Crypto analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi