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Gold plummets as dollar surges and Fed guessing continues
Spot gold plunged sharply on Tuesday, by more than 3% at its worst, as the US dollar surged and more signals emerged that a Fed rate hike this year may be increasingly likely. Monday’s US manufacturing PMI data came out significantly better than expected, further helping to support an impending Fed rate hike, which would place significant pressure on non-interest-bearing gold. Other critical data releases this week will include the non-manufacturing PMI data that is due out on Wednesday, as well as the heavily-anticipated September jobs report on Friday.
Market Review & Outlook: Three Major Market Drivers
At the very end of September and the third quarter of 2016, with the US Federal Reserve’s latest interest rate decision out of the way for the time being, three major drivers have been dominating the financial markets and should continue to be instrumental in moving markets going forward. These three drivers are: 1) the first US presidential debate and upcoming elections, 2) severe troubles in the banking industry, and 3) the oil production deal reportedly agreed upon by OPEC members this past week.
Stocks trim losses
European stock markets started this last day of the month and quarter sharply lower as concerns over Deutsche Bank intensified, which undermined sentiment in the financial sector once again. Deutsche shares tanked nearly 9% at the open and hit a new 33-year low. Investors were concerned by news that some hedge funds have begun to pull their business from Germany’s largest lender.
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USD/JPY falters amid safe-haven yen strength
USD/JPY initially surged on Thursday morning as the safe-haven yen pulled back on well-supported equity markets and hopes for a long-awaited OPEC deal to limit oil production and stabilize crude oil prices. This calm would not last into afternoon trading, however, as doubts about the solidity of the oil deal emerged and financial stocks took a hit due to fall-out from Deutsche Bank’s woes. These concerns helped pressure equity markets, boosting the safe-haven yen and weighing on USD/JPY once again.
Stocks surge on short-covering; Deutsche boosts banks, DAX
European stocks have bounced back sharply today, with the major indices rising between 1 and 3 per cent by mid-morning session. The equity market rally is in part because of short-side profit-taking following the recent acceleration in the downward trend. The lack of any major economic news so far this week means even the sellers are making a more sober assessment of the global economy and are wary of the possibility that Fed Chairwoman Janet Yellen may say something surprisingly dovish as she testifies before the House Financial Services Committee, in Washington, later today. They also realise that after its latest big drop, crude oil could come back if, for example, the US Department of Energy reports a surprise drawdown in oil inventories this afternoon. If oil rebounds, energy stocks could benefit as a result.
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