Intraday Market Thoughts

Bottom Up Update on USD, Gold, Silver

by Adam Button
Aug 6, 2020 22:39

The market continues to use its imagination surrounding US stimulus negotiations, but at some point fear will creep in. The Australian dollar was the top performer while the Swiss franc lagged. The July non-farm payrolls report is due up next. Ashraf has come up with a Bottom-Top approach to updating a Time-Price call on gold, silver and USD in a new English-Arabic video below for Premium subscribers. He dissects the triangularity of USD-pairs, USDX and gold with a time-based spin. 

Shortly after the jobs report on Friday, the market will shift to focusing on US stimulus talks. As we wrote about earlier in the week, the market is sensing the strong hand that Pelosi has and her determination to push through extended employment benefits.

Republicans have proposed a $1 trillion package that includes a drop in special benefits to $200/week from $600/week, but Democrats are pushing for no change through year-end. Initially the thinking would be that they would split the difference, but Pelosi believes she has the leverage to get nearly everything Democrats want. She estimates voters will blame the President and his party if a deal isn't struck.

So far that's led to a deadlock. Pelosi said there will be a deal at some point but she doesn't appear to be in any rush to lower her demand from $3.4 trillion in spending. Meanwhile, the White House is planning an executive order to delay payroll tax collection in an attempt to appear proactive, or to handcuff Democrats into making the waiver permanent when it ends.

There's no doubt the lack of benefits is already hitting consumer wallets and it could quickly sap overall spending. How much patience does the market have? If the jobs report is weak, it could run out quickly.

Underpinning USD bears was this week's US Treasury's quarterly refunding announcement for August to October. Coupon sales were larger than expected and will be a record $112B next week. Swallowing all that supply pushed US 10-year yields up 3.6 bps to 0.547%. The rebound gave 10s some breathing room ahead of the key 0.50% level.

The energy market is another spot to watch. Oil looked like it was breaking above its six-week in a WTI rally to $43.50, but the break couldn't be sustained in a decline back to $42.00s


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