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Stock futures trade soft, Gold on the back foot, oil higher

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By Naeem Aslam  

US and European futures are trading a bit soft on Wednesday as traders continue to take a small breather after the recent stellar rally in the equity markets.

Bulls needed an excuse to take some profit off the table, and the weakness in the Chinese data and the news of a downgrade by the rating agency Fitch in regional banks have given them enough reason to shave off some of the profit.

If you look at fundamentals, they will continue to remain highly strong. This is because if one pays attention to the recent commentary coming from Federal Reserve board members, there is more of a dovish tint, and it seems interest rates are likely to stay where they are for the time being.

It also means that traders should take every comment from the Fed members with a pinch of salt, as everything is still very data-dependent, and if a few members are giving dovish comments, it doesn’t mean that they can change the overall narrative.

The main narrative is driven by the data and, most importantly, the US CPI number that will be released. This number is what sets the tone for the Fed in terms of the future path for interest rates.

Given that oil prices are on the move, one should continue to pay close attention to CPI, as chances are we may see a wrong turn in those economic numbers. Although the wrong turn may be for a brief moment, it would bring significant volatility for market players.

Gold weakness

As for gold, we continue to see more weakness despite the fact that traders haven’t been backing riskier assets for the past few days.

In addition, the Fitch downgrading of the US regional banks has also failed to revive momentum in the precious metal, and this means that traders are out of luck for the time being.

One of the obvious reasons for the weakness is some bullishness in the dollar index, but overall, it seems like the gold price is mostly out of luck.

Having said this, from a technical price point, the price has started to look a bit oversold, and the RSI on the daily time frame is moving towards the 30 level, and the price is approaching the 200-day SMA. Both of these factors could provide support for the precious metal.

BTC continues battle

BTC has been interesting in light of the Fitch downgrade of US regional banks, but that momentum seems to be fading once again as the price is really struggling to move back above the 50-day SMA.

Thursday’s CPI data will be an important economic number to watch as inflation readings tend to drive the price action for Bitcoin.

If inflation continues to slow down, we could see weakness for the dollar index, which could move BTC higher, but again, the whole move could also be limited as BTC is naturally considered a hedge against inflation due to its limited supply.

Brent and crude oil prices are off their lows of the week, and they are on track to be positive once again after posting a record six consecutive weeks of upward momentum.

There is no doubt that there is plenty of momentum here, and traders are ignoring all the bad news that is embedded in the Chinese data, which many analysts are trying to drum as loud as they can.

Oil traders are feeling highly comfortable with their approach when it comes to trading oil prices, and the clear trend seems to be skewed to the upside.

 

Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.