US Open – Trade Optimism, Impeachment Analysis, Fed’s Evans, Oil Sinks, Gold Steadies

Fundamental analysis of Forex market

US stocks are attempting to open higher on trade optimism and after most impeachment analysis sees equities possibly soaring higher, like President Clinton’s rally in 1999. Impeachment proceedings are the markets new Brexit, with President Trump leaving office being similar to a no-deal Brexit scenario. As long as no new damaging info comes out, the likely scenario is that the House will impeach Trump, but the Republican led Senate will acquit him.

Trump will want to change the news flow and markets will remain extremely sensitive to trade news. Overnight, S&P 500 futures spiked higher on speculation that was flowing through news rooms that China was preparing for a US-China trade deal/post-PRC celebration. The world’s two largest economies are probably still far from a longer-term trade solution, so the base case is becoming an interim deal that will likely see China deliver on more purchases, but the US might hold off on the push for the changes on Chinese law.


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Chicago Fed President Charles Evans, normally a dove, dented rate cuts bets after he noted ““I was able to generate a bit of overshooting for our inflation objective over the forecast horizon with simply the cuts that we agreed to and so I did not have another rate cut in there.” The current implied probabilities now target a 51.7% chance of a rate cut at the October 30th meeting, with December yielding a greater probability at 75.4%. The data dependent Fed will closely watch tomorrow’s personal income and spending data, along with their favorite inflation gauge. If we see a couple big misses with tomorrow’s data, rate cut odds should come closer to pricing in a cut at the October meeting.


With the Saudis successful return of lost production that stemmed from the Sept. 14 attack on its oil facilities, crude prices are trading mainly on the oversupplied oil market outlook for 2020. Much of the recent global economic data paints weakness in all the major economies and that does no favors for the global demand outlook. Oil prices are approaching key support levels and if we see a hint of bearish momentum, it could get ugly. For oil to stabilize, it seems we need to see a geopolitical risk flare up, Hurricane Karen or Lorenzo to threaten production in the Gulf, or an interim US-China trade deal that delivers a boost to sentiment and business investment.


Since making a 6.5-year high earlier in the month, gold has traded in wide range that shows the longer-term bullish rally continues to show some exhaustion. The weakening global economic data and political risks should keep stimulus strong from the Fed, ECB and PBOC and once this consolidation period ends, we could see gold target the $1,600 level.

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