The rise in the dollar came to an abrupt end, and the gold pulls up to fight again on the 1480 night of "small non-farmers."

October 2, 2019

New York (Oct 2)  As the dollar bulls prepared to rush to the 100th mark, an economic data sent it back to its original form on Tuesday. In September, the US manufacturing activity index fell to its lowest level in 10 years. The market suddenly changed its face. The dollar "platform dive" once approached the 99 mark, and the spot gold Jedi fought back to break through the 1480 mark. This trading day, the market is concerned about the "small non-farmers" known as the "small non-farmers" of the United States ADP employment data. In addition, the Fed's "number two" Williams will also speak.

One night of upheaval! The dollar was hit by a sudden critical attack, a golden Jedi counterattack

At the beginning of the week, the dollar bulls continued to counter-attack, constantly refreshing two-year highs, but the good times did not last long, and the dollar's rally came to an abrupt end on Tuesday with "bad news" from economic data.

(ISM), the Institute for supply Management, said on Tuesday that the ISM manufacturing index fell to 47.8 in September, the lowest since June 2009 and a further decline from the sharp contraction in August. A reading below 50 indicates a contraction in manufacturing.

The ISM's August report showed that manufacturing activity shrank for the first time in three and a half years, and more worryingly, the export orders index hit a more than 10-year low. Manufacturing accounts for about 12% of the U. S. economy.

It is not just the US, but a survey released earlier in the day showed that manufacturing activity in the eurozone shrank at its fastest pace in nearly seven years in September.

Hubert de Barochez, a macro-market economist at Caitco, said that given the recent weakness in eurozone economic data, US manufacturing data had disappointed investors even more because the market had expected the US economy to rebound.

After the data were released, the dollar fell sharply from a multi-year high of 99.68 hit in the day, falling to 99.05 at one point, approaching the key 99 level. In early trading in Ya City on Wednesday, the US index continued to bear pressure, and the rebound momentum was obviously insufficient.

At the same time, spot gold continued to pull up, last day from a low of 1460 below the Jedi counterattack, rose more than $20, rising above the 1480 level, Wednesday morning in Asia, gold prices continue to hover around 1480.

COMEX's most active gold futures contracts traded 38260 hands in nine minutes between 22: 00 and 22: 08 Beijing time, with a total value of more than $5.6 billion, according to the data.

Phillip Streible, senior commodity strategist at RJO Futures, said: "this shows that there could be a major correction in the economy and traders are now returning to the safe haven market. Weaker manufacturing data could support another Fed rate cut, so metals could be boosted. "

Weaker manufacturing data supported another Fed rate cut, triggering safe-haven buying and dovish repricing of dollar and federal funds rate futures.

"our guess is that the weak September data is at least partly due to the GM strike that began in mid-September," said Paul Ashworth, chief US analyst at Caitol Macro in Toronto. "

The UAW launched its first company-wide strike at GM a few weeks ago in 12 years.

"however, it reinforces our view that, despite hawkish remarks by some Fed officials in recent days, the Fed will cut interest rates by a further 25 basis points at its December meeting of the Federal Open Market Committee," Paul Ashworth said. "

According to the latest CME FedWatch data, the market expects the probability of the Fed cutting interest rates by 25 basis points in October to 64.7%, and the probability of cutting interest rates by 25 basis points in December is as high as 79.3%.

Jim Bianco, director of Bianco Research in Chicago, said of the ISM report: "this is a bad data that coincides with the global manufacturing recession. I think the market's concerns are correct, but we have to see if other manufacturing data in the United States confirm that, not just Friday's manufacturing employment data. "

Stan Shipley, macro research analyst at Evercore ISI, said: "the data increase the likelihood that economic growth will fall below trend for a long time. [the US economy] is not in recession at the moment, but it is certainly moving in that direction. "

Poor economic data have also led to a new round of "attacks" by US President Donald Trump.

"as I expected, Powell and the Fed allowed the dollar to become so strong, especially relative to all other currencies, that our manufacturers were severely affected," Trump said in a tweet on Tuesday. "

Tonight, the little non-farmers are attacking.

The jobs report, to be released on Friday, is expected to provide further clues to the strength of the US economy after the market was rocked by poor ISM manufacturing data.

Before that, the market tonight will usher in the "small non-farmers" known as the "small non-farmers" of the US ADP employment data, will be released at 20:15 Beijing time on Wednesday. According to the survey, ADP employment in the United States is expected to increase by 138000 in September, up from 195000.

Ian Lyngen, head of US interest rate strategy at BMO Capital Markets, wrote: "if the job market starts to crack more, the 10-year bond yield is expected to retest 1.50% in the short term, and if the bond continues to expand its rally after hitting that level, the next target [yield] is a 12-month low of 1.43%."

Kathy Lien, managing director of asset management at BK, wrote that while manufacturing employment was a separate item in Friday's employment report, the employment index fell to its lowest level since 2016, a dangerous signal for the economy and employment. We will learn more in Thursday's services report, but for now, today's report has changed the direction of the dollar, weakening market expectations.

In addition to the dollar correction, Treasury yields turned negative and the Dow fell more than 300 points, Lien said. If Wednesday's ADP report fails to meet expectations, we may see a more severe sell-off that could push the dollar / yen below 107.50.

In addition, at 22: 50 tonight, Williams (John Williams), permanent voting committee of the United States FOMC and chairman of the New York Federal Reserve, attended a seminar before the 2019 University of California, San Diego Economics Roundtable Lecture Series. If you talk about monetary policy, focus on its policy position.

Prospects for the future of gold

A recent report from UBS (UBS) said it now believes gold could hit as high as $1730 next year, $50 higher than its August forecast. Last month's report pointed out that gold could reach $1680 over the same period of time.

Michael McCarthy, chief market strategist at CMC Markets, said the dollar was likely to rise further, putting pressure on gold. "in addition, falling below the $1480-$1490 / oz support area itself will lead to more selling."

Florian Grummes, a gold market analyst at Midas Touch Consulting, said investors were next to focus on the $1450 / oz level, which could fall further to 1380 once it falls below that level.


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