The US dollar is better bid on Monday and the 10-year treasury yield rose near 0.55%. Fitch maintained the US long-term debt at AAA but downgraded the outlook from stable to negative. But the deteriorating US debt outlook didn’t have much impact on US sovereign appetite as the rising sovereign debt levels increases the global default risk and the US debt, though riskier, is still considered the safest across the board.
The recovery in US dollar triggered decent profit taking in EURUSD, pulling the pair to 1.1740 at the start of the week. The downside correction could extend another figure to the 1.1630 mark, the minor 23.6% Fibonacci retracement on April – July rebound.
Pound bulls will likely lose strength above the 1.30 mark, as the medium-term outlook for sterling remains negative on lingering Brexit risks. Therefore, the slightest improvement in US dollar appetite could send Cable to 1.30/1.28 range, while sterling will likely struggle to defend its advance against the single currency. Solid buyers are touted near and below the 0.90 in EURGBP. The Bank of England (BoE) is broadly expected to maintain the policy rate and its asset purchases unchanged at this week’s MPC meeting, however investors expect 70-billion-pound rise in sovereign purchases in November or December.
Gold consolidates gains above the $1970 per oz. A further rise towards the $2000 is possible, but gains should remain short-lived due to overbought market conditions and signs of a possible return to the US dollar.
Softer global risk appetite and increased downside pressure on global oil demand has been preparing the ground for a slide below the $40 per barrel in WTI crude. Encouraging manufacturing data should slow down the softening in oil prices, but even signs of economic recovery will unlikely prevent a downside correction below the $40 mark as the premature tapering of the OPEC production cuts increases the worries of a higher global glut in the coming months.
