By Jameel Ahmad, Chief Analyst at CompareBroker.io
Market sentiment is in line to conclude weekly trading more upbeat and with the hope that an agreement to raise the US debt ceiling will be put to a vote next week.
Where there is smoke, there is generally fire, but this is one update that can bring some relief to all of us watching 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 the US debt ceiling negotiations to dominate all news flow.
As long as the current situation risks hanging over the head of financial market sentiment and in fact, market stability should the unreal thought of the United States running out of money become reality, economic data releases next week could very much be parked to the side of our attention.
As it also appears that there we will probably learn of 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 on Monday.
EURUSD to struggle finding 1.08
EURUSD is down by just over 1.2% this week and struggling to mount a convincing attempt to reclaim 1.08 at the end of the trading week.
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. 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 faces the prospect of further losses heading into next week.
Gold sellers back in control
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 was trading just above $1965 on Friday and sellers are clearly 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 will be dominated by US debt ceiling news, 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
Oil appears to have kept its head above water at $70 as the trading week concludes.
It appeared at one point as if the commodity would drop back into the $60 range as 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 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 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 could even be considered as the most liquid one can hold.
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.
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