By Lukman Otunuga, Senior Research Analyst at FXTM
Asian shares edged cautiously higher on Tuesday, tracking a rebound in Wall Street overnight, despite disappointing economic data from China and the US fuelling recessionary fears.
Stocks in the region were supported by expectations over China unleashing more stimulus to support economic growth.
In Europe, futures pointed to a steady start, borrowing momentum from Asian markets ahead of the German ZEW survey for August. This has proved to be a leading indicator for the Eurozone and may give more insight into the severity of the downturn in the wider region.
With recent economic data showing US inflation cooling, this has offered equity bulls some room to breathe and may translate to further short-term gains across stock markets.
In the currency arena, the safe-haven dollar drew ample strength from global recession fears, while oil prices tumbled to levels not seen in six months on growing signs of an economic downturn and prospects of rising supply on an Iran deal.
Gold has struggled for direction Tuesday morning after tumbling more than 1% in the previous session. Prices are trading back within a range and could be waiting for a fresh directional catalyst this week.
Fed minutes and Fed speakers
This could be a volatile week for the dollar due to the FOMC meeting minutes, key economic reports, as well as scheduled speeches from Fed officials.
All eyes will be on the Federal Reserve meeting minutes released on Wednesday. This will be closely scrutinised by investors for any fresh clues into what policymakers were thinking when rates were hiked by 75 basis points for a second straight meeting.
If the minutes strike a hawkish tone, this could inject dollar bulls with fresh inspiration as rate hike bets jump towards another jumbo-sized September move. Alternatively, any dovish hints or caution may encourage some dollar weakness.
It will also be wise to keep an eye on the US retail sales report for July published mid-week and speeches by Kansas City Fed President Esther George and Minneapolis Fed President Neel Kashkari on Thursday.
Oil prices crumble
Oil prices collapsed like a house of cards on Monday as China’s growth fears and prospects of rising supply empowered bears.
Given how Libya is pumping more oil and Iran is moving closer to restoring a nuclear deal, this could result in higher flows at a time when demand remains shaky.
Both WTI and Brent remain under pressure on the daily charts with a stronger dollar seen enforcing downside pressures. The benchmarks have shed roughly 6% this month with the current fundamental drivers opening the doors to further losses this week.
Gold stuck in $1770-1880 range
Gold remains stuck in a range with support at $1770 and resistance at $1800.
A breakout could be on the horizon triggered by the pending Fed minutes, US economic data, or even speeches by Fed officials.
A move above $1800 would open the door towards $1825. Alternatively, a selloff below $1770 is seen triggering a steeper move back towards $1740.
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