Daily Market Analysis

Latest Economic Insights

Key Headlines:

• The dollar steadies near 99.5 as markets continue to assess US interest rate hike expectations.
• The probability of a rate hike in September rises to more than 65% after Kevin Warsh’s hawkish remarks.
• Gold is trading near $4,460 under pressure from higher oil and expectations of monetary policy tightening.
• The return of escalation between the United States and Iran increases inflation risks and energy disruptions.
• Brent crude is trading near $91 and West Texas near $86.
• Bitcoin holds trading above the 50-week moving average with institutional demand continuing.

Fundamental Analysis

• The Dollar and Monetary Policy
  • The dollar index steadied near the 99.5 level on Tuesday after its retreat in the previous session, with investors continuing to assess the probability of an interest rate hike by the Federal Reserve following hawkish remarks from the board’s chairman Kevin Warsh and the return of oil prices to the upside.
  • Warsh said that the Federal Reserve “has work to do” if policymakers do not obtain clearer evidence confirming the return of inflation toward the 2% target, which brought expectations of a rate hike at the September meeting back to the markets.
  • Current pricing points to a probability of more than 65% for an interest rate hike during September, compared with around 36% before Warsh’s remarks, which reflects a clear shift toward the expectation of a more hawkish monetary policy.
  • Investors are also awaiting today’s US manufacturing activity data and the JOLTS job openings report, ahead of the jobs report for August on Friday, which will be among the most prominent indicators the Federal Reserve relies on in assessing the strength of the economy and the labour market.
  • At the same time, the rise in oil prices added a new factor to inflation risks, after the renewal of hostilities between the United States and Iran in the Strait of Hormuz, which provided some support to the dollar as a safe haven and strengthened the likelihood of interest rates remaining high.

• Gold:
  • Gold traded near the $4,460 per ounce level on Tuesday, hovering close to its lowest levels in around two weeks, as it came under pressure from the rise in oil prices and the growing expectations of a US interest rate hike during September.
  • The rise in energy costs represents a source of concern for markets, because it could lead to a renewed acceleration in inflation and strengthen the Federal Reserve’s hawkish stance, which is usually a negative factor for gold as an asset that offers no yield.
  • Kevin Warsh’s remarks also contributed to increasing the pressures, after he affirmed that the Federal Reserve still needs to see stronger evidence of inflation returning toward the 2% target.
  • Nevertheless, gold ended the month of August with gains approaching 10%, benefiting to a large degree from US debt concerns and the long-term bond buyback programme launched by the Treasury Department, which returned attention to what is known as the currency debasement trade.
  • Gold’s direction over the coming days remains tied to the strength of the US economic data, particularly the labour market data, alongside developments in oil prices and tensions in the Middle East.

• Oil:
  • Oil continued its gains for the second consecutive session, with Brent crude trading near $91 per barrel, while West Texas Intermediate moved past the $86 level, as concerns over supply security in the Middle East returned.
  • US forces targeted two Iranian missile launch platforms on Lark Island, while Iran responded with attacks on the Emirates and Jordan, in an escalation that represents a direct return of hostilities after around a month of relative calm.
  • President Donald Trump also widened the scope of his military threats to include Kharg Island, which is the main export hub for Iranian oil, which increased markets’ sensitivity to any new military developments.
  • At the same time, quantities of oil are still passing through the Strait of Hormuz, with the Emirates, Saudi Arabia, Kuwait and Iraq continuing to export part of their production, which helps limit the occurrence of a larger shock to supplies.
  • However, the risks remain elevated after a fire broke out on a giant oil tanker as a result of it striking two naval mines in the strait, which confirmed the continuation of the risks facing shipping movement.
  • Disruptions at Russian refineries also contributed to tightening global refining capacity and lifting refined product margins to record levels, which provides an additional supporting factor for energy prices.

• Bitcoin
  • Bitcoin maintained a relatively positive technical picture with trading continuing around the 50-week exponential moving average near $78,377, coinciding with improved institutional demand and buying by companies.
  • MicroStrategy announced the purchase of around 4,603 Bitcoin during the period from 24 to 30 August at an average price of $80,318, bringing its total holdings up to around 845,050 Bitcoin at an average cost of close to $75,412.
  • A bullish crossover also appeared between the 50-day and 100-day moving averages, which supports the positive view if the price manages to hold the support areas and regain momentum above the weekly moving average.
  • The potential upside targets are concentrated in the area between $88,000 and $90,000, while the near support lies around $75,568, and a break of it could lead to a retest of the $74,000 area.
  • At the same time, the value of BlackRock’s Bitcoin-linked portfolio reached around $98.6 billion after flows estimated at around $55 billion, which reflects the continued importance of institutional demand in determining the market’s movement.
  • Bitcoin remains sensitive to the direction of the dollar, global liquidity and US interest rate expectations, especially with an important set of labour market data approaching this week.

Today’s Economic Data (GMT+3 / KSA time)

• From the Eurozone, Consumer Price Index (YoY) (August) 12:00
• From the United States of America, Manufacturing Purchasing Managers’ Index (August) 16:45
• From the United States of America, Manufacturing Purchasing Managers’ Index issued by the Institute for Supply Management (ISM) (August) 17:00
• From the United States of America, Job Openings (JOLTS) (July) 17:00

GOLD

• Trend: Bearish
• Timeframe: 30 minutes
• Current price: 4,429.53
• First scenario: Buy on a break above 4,455.57
• Targets: 4,487.34 then 4,522.49
• Alternative scenario: Sell on a break below 4,414.05
• Targets: 4,379.87 then 4,347.13
• Note: Gold is still under selling pressure and is trading below the declining moving averages, so the advantage remains with the downside below 4,455.57, and a break below 4,414.05 confirms an extension of the move toward the next supports.

CRUDE OIL

• Trend: Bullish
• Timeframe: 30 minutes
• Current price: around 88.00
• First scenario: Buy on a break above 88.90
• Targets: 90.62 then 92.52
• Alternative scenario: Sell on a break below 86.63
• Targets: 84.92 then 83.15
• Note: Oil is holding a bullish structure and is trading above the moving averages, so the advantage remains positive as long as it is above 86.63, while a break above 88.90 gives stronger confirmation of a continuation of the advance toward the higher levels.

EURUSD

• Trend: Bearish
• Timeframe: 30 minutes
• Current price: 1.16004
• First scenario: Buy on a break above 1.16230
• Targets: 1.16509 then 1.16861
• Alternative scenario: Sell on a break below 1.15907
• Targets: 1.15564 then 1.15271
• Note: The price is still below the moving averages and the general trend is tilted to the downside, so the selling advantage remains as long as it is below 1.16230, while a break above this level could support an upward correction.

GBPUSD

• Trend: Bearish
• Timeframe: 30 minutes
• Current price: 1.35379
• First scenario: Buy on a break above 1.35637
• Targets: 1.35966 then 1.36331
• Alternative scenario: Sell on a break below 1.35275
• Targets: 1.34921 then 1.34581
• Note: The downward trend is still in control with the price remaining below the moving averages, and a break below 1.35275 supports the continuation of selling pressure, while a break above 1.35637 opens the way for an upward correction.

NAS 100

• Trend: Bullish
• Timeframe: 30 minutes
• Current price: 29,476.31
• First scenario: Buy on a break above 29,629.99
• Targets: 29,762.74 then 29,887.95
• Alternative scenario: Sell on a break below 29,336.86
• Targets: 29,168.90 then 28,959.13
• Note: The index succeeded in rebounding and regaining the short-term moving averages, which gives a positive advantage at present, but confirmation of a continued advance requires a break above 29,629.99, while a break below 29,336.86 restores selling pressure.