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The Missing Link

June 2016

Gold bears are on a rampage as optimism grows over another US rate hike in Q2 this year

Sluggish Korean exports raises questions
Korean exports are often considered as the bellwether of world’s economic trend, with nearly 60% of Korea’s total exports going to the world’s four largest economies (areas) – China (26% of exports), the US (13.3%), the EU (9.1%) and Japan (4.9%), totaling 53.3% of exports (if we include Hong Kong as a part of greater China, 59.1%). Reflecting the post-crisis sluggish recovery in DMs, growth slowdown in EMs (notably China) and the collapse of oil and commodity prices, Korean export growth has been negative every month on a year-on-year basis since January 2015-to-date, raising questions about the fundamental health of the global economy, says BofA Merrill Lynch in a report.

Russian Ruble could weaken
Russia should soon enter the period of adverse seasonality in the current account. The trend starts in the summer and traditionally puts pressure on the RUB and the market in general, with a peak in August. The underlying seasonal trends in the current account can be dominated by a secular move in the oil price, which could move the market in either direction. However, oil by itself is also subject to negative seasonality, which could further undermine risk reward for the RUB in the coming months. However, as BofA Merrill Lynch report says, most of the seasonal patterns within the Russian current account are easily dominated by the underlying trends in the oil markets, which are capable of driving the RUB in either direction, largely regardless of seasonal flows.

WTI crude trapped below $50
WTI Crude bulls have found it increasingly difficult to breach above the psychological $50 resistance despite the short-term declining oil productions that offered inspiration of bullish investors to install a round of buying. According to FXTM Research Analyst Lukman Otunuga, sentiment remains bearish towards oil and if the pending OPEC meeting leaves investors empty handed without a production freeze agreement, bears could exploit this opportunity to send prices lower. It is already widely known that Iran remains on a quest to reclaim lost market share and this could weigh heavily on bulls. From a technical standpoint, $50 is a key resistance and if bulls fail to break above this level then the only way could be down.

Gold bears clawing back
Gold bears are on a rampage with prices plummeting towards $1200 during trading on May 30, 2016 as optimism grows over another US rate hike in Q2. This metal has been punished considerably during trading this month and an appreciating Dollar simply adds to the pain. Bears have received encouraged to send prices much lower with the hurtful combination of Dollar appreciation, rising rate hike expectations and renewed risk appetite providing a foundation for another heavy round of selling. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has also crossed to the downside, Otunuga says. A decisive breakdown and daily close below $1200 could breach the flood gates with $1160 as a target.

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