Market Drivers – US Session – Thursday, August 18

The US dollar has strengthened all along US trading hours as best performer. Market players assessed several encouraging US macroeconomic readings that suggest the economy has a good chance to avoid recession, despite technically being in.

Economic Data

Economic data refers to Initial Jobless Claims declining to 250,000, below expectations, Philly Fed jumped to 6.2 in August from -12.3, also surpassing expectations, but Existing Home Sales fell to 4.81M, marking decline for the sixth month.

Other Developments

The economic outlook for Europe’s largest economy looks gloomy due to soaring energy prices and supply chain disruptions according the Finance Ministry’s August monthly report, published early Friday.

Despite optimistic analyses, a deal looks doubtful in the short term, as both sides could favour the “no deal” grey zone, without announcing the end of talks, though the US is fully aware that stricter sanctions enforcement would worsen the oil shortage. Both the US and Iran have an interest in continuing talks rather than dumping them altogether, they both know that the alternative is worse.

Investors changed their minds regarding Wednesday’s FOMC minutes that were initially seen as relatively dovish, particularly with policymakers’ concerns about the risk of raising rates to levels that may create a problem, not a solution.

The latest US data hints at a much better situation than initially feared. Inflation has finally begun easing while the employment sector remains solid. Additionally, other indicators related to business activity have surprised to the upside.

Minneapolis Federal Reserve Neel Kashkari said that if they keep raising rates, the risk of a recession could increase, although he does not believe the county is currently in a recession. On the other hand, the usual hawk, Bank of St. Louis James Bullard said he is leaning towards another 75 bps rate hike in September.

Safe-haven rivals are ending Thursday near their intraday lows against the dollar, with USD/CHF at around 0.9560, while USD/JPY trades at 135.95.

The AUD/USD pair trades around 0.6910/20, with the aussie additionally weighed by dismal Australian employment figures. USD/CAD stands at 1.2940, as Canadian Industrial Production unexpectedly contracted in July.

The broad dollar’s strength pushed gold to a fresh weekly low of $1,755.30 a troy ounce. Crude oil prices, on the other hand, recovered their bullish poise, and the barrel of WTI currently stands at around $90.50 a barrel.

OPEC’s new secretary general Haitham al-Ghais said on Thursday that he was relatively optimistic on the oil market outlook for 2023 and added that the world was dealing with economic pressures of inflation in a very good way.

“I want to be very clear about it – we could cut production if necessary, we could add production if necessary,” as-Ghais further elaborated. “It all depends on how things unfold. But we are still optimistic, as I said. We do see a slowdown in 2023 in demand growth, but it should not be worse than what we’ve had historically.”

The EUR/USD pair plunged below the 1.0100 mark and trades near a daily low of 1.0078. GBP/USD, in the meantime, trades around 1.1930.

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