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Debt ceiling talks and USD revival dominate

Commentaries & Views

Financial market sentiment is in line to conclude weekly trading today more upbeat by optimism and hope that an agreement to raise the US debt ceiling will be put to the table for a vote next week. Where there is smoke, there is generally fire but this is one update that can bring some relief all of us watching global markets - for as long as it avoids the prospect of the United States running out of money in two weeks time.

Heading into next week, expect for US debt ceiling negotiations to dominate all news flow.

For as long as the current situation risks hanging over the head of global financial market sentiment and in fact, financial market stability should the unreal thought of the United States running out of money become reality, global economic data releases next week could very much be parked to the side of our attention.

As it also appears that there is every possibility that we will learn developments and get updates regarding where things stand over the weekend, traders also need to prepare themselves for the possible risk of investment assets gapping when trading resumes following the weekend.

EURUSD to struggle finding 1.08

The EURUSD is down by just over 1.2% at time of writing this week and struggling to mount a convincing attempt to reclaim 1.08 at the end of the trading week today.

There are a few factors that have gone against the Eurodollar this week, namely the knockback to global economic sentiment following the Chinese macro releases a few days ago and a hook from a stronger USD pushing higher against its counterparts.

The near-term struggles for the Eurodollar can also be linked to technical price action as well. The EURUSD was not able to take on 1.10 after the ECB interest rate decision not that long ago, and this weakened the hopes of a Eurodollar rally this month.

As we now face the prospects of a revival for the Greenback, especially as the clock ticks nervously closer to the debt ceiling deadlines, the Eurodollar does face the prospect of further losses heading into next week.

Sellers unexpectedly back in control for Gold

Sellers wasted no time at all jumping into action and pricing in fast declines into Gold after it unexpectedly dropped below $2,000 this week.

The precious metal is trading just above $1965 at time of writing and we can say that sellers are now back in control of price action. From a longer-term perspective, Gold remains at historically steep levels. There are also still more than enough reasons to hold hope for Gold. However, breaking below $2,000 this week tipped the scales fully in the direction of sellers after the first half of May was dominated by buyers.

As next week appears that it will be dominated by US debt ceiling news flow, we can expect Gold to trade with sensitivity in response to what headlines might arise. Until there is an iron-clad resolution to this issue, there is a risk that the United States might run down the clock and risk facing the music of a possible default. As unlikely as this might be as we all know that the current gridlock is pantomime, Gold price action from a theme perspective might try to jump on these types of headlines next week.

Oil above $70 as weekend nears

Oil appears to have found success at keeping its head above waters at $70 as the trading week concludes today.

It did appear at one point as if the commodity would drop back into the $60 range as global economic sentiment took a blow from underwhelming China data announcements at the beginning of the week, but it appears that Oil has avoided this challenge. At least for now.

Looking ahead to next week, Oil price volatility could be exposed to debt ceiling negotiations.

Even if the current standoff does not impact macroeconomics initially, warnings that the debt ceiling situation not being resolved could be "catastrophic" holds clear financial market implications.

At the end of the day, Oil will always be considered as a risky asset to hold in a portfolio and in line with emerging markets it is not a long shot to say that it could even be considered as the most liquid one can hold.

So if financial markets sell off due to political gridlock over the debt ceiling, expect for Oil to be one of the first assets that investors throw into the line of fire.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.