Stock Futures Trade Mixed, BOC May React Like RBA, Gold and Bitcoin in Focus

U.S. and European markets are set for a mixed open as traders pay close attention to weak economic numbers out of China and another surprise interest rate hike by the RBA.

Over in Europe, what matters the most in terms of sentiment today is the German Industrial Production m/m. The data brought more weakness for the sentiment among traders who believe that weakness in the German Industrial number gives a clear indication that things are heading downhill for the most important and strongest economy of the Eurozone.

In terms of sentiment, there is no doubt that there is still a lot of strength in the tech sector, and more and more stocks continue to trade above their 200-day SMA on the daily time frame. Tech has been the sector where the rally, strength, and confidence have been for traders, and it is likely that the momentum fired up by Apple (NASDAQ:AAPL) with its VR glasses is more than likely to bring more flow to the sector.

The energy sector is still lagging this year; traders continue to worry about the demand for oil prices as the world economy continues to slow down and central banks try to tackle inflation. Oil prices have started the day on the back foot again, and they have traded in negative territory for the third day in a row.

Crude oil price continues to flirt with the $70 handle which means extreme weakness for oil prices may be heading as Saudi Arabia’s recent cut in oil supply has failed to revive the rally. Although, many do think, if the Saudis had not intervened, we could be looking at a much more weakness in oil prices so their intervention has been highly timely again.

Commodities

Gold remains at an interesting point as traders continue to focus on two things. Firstly, they are looking at the risk-on rally that pushed the S&P 500 index to its highest level this year. Obviously, when we do have a risk-on rally, it keeps a lid on the gold price. Secondly, they are focused on the Fed and what they are going to do in the coming weeks when the spotlight will come on them.

The question that many are asking themselves is whether central banks like Australia are still surprising the markets with an expected rate hike, while the Fed, on the other hand, is very carefully managing expectations. But the question is if the Fed is going to stick to its guns or try to shoot down inflation further. The dollar index is certainly suggesting that there is a large possibility for this, and the strength in the dollar index is keeping gold traders somewhat worried.

But overall, the price action for gold remains positive this week, and gold traders don’t seem to be in the mood to leave any ground. But again, the level that puts the bulls on the higher ground is the price level of 2,000, and currently the price is trading below this mark. This means that there is some hallucination among gold traders who think that the odds are stacked in their favor.

Forex

In the currency markets, traders are looking at the monetary policy action by the BOC, which isn’t expected to hike interest rates further, but the risk remains to the upside. We believe that there is a strong possibility that we could see another surprise interest rate hike by the BOC as inflation is still sticky and the bank wants to use every single opportunity to hike rates to slow down inflation and bring readings lower. The forecast for the BOE overnight rate is 4.50%, which is the same as last time, but in our opinion, we could see another interest rate hike of 25 basis points. This means that the overnight rate could jump to 4.75%.

The Canadian dollar will be an interesting currency to watch on the back of this, and speculators have positioned themselves to go higher. This also means that if the BOC doesn’t increase the rate and keeps it at the same level, there could be a squeeze and some pressure on the currency on the downside.

In terms of the Aussie dollar, clearly the RBA has its goals defined very clearly, and it is less concerned about everything else as the GDP data has confirmed further weakness. Traders are disappointed with the number, as the data has fallen massively from its previous reading of 0.6% to its current reading of 0.2%. More weakness is in store for the Australian economy, especially given the fact that the RBA is so determined to bring inflation lower at the cost of economic growth.

Bitcoin

We saw tremendous strength coming back for Bitcoin yesterday despite heavy regulatory pressure. Traders and investors know that this is possibly the last bad news for the industry, as they have been expecting this outcome for a long time. Yes, crypto companies will pay some fine—something that we have seen many times in the banking space when they do what they shouldn’t have done. But then things do move on and become normal. This is exactly what we experienced yesterday, initially, there was a bit of a knee-jerk reaction in the market, but eventually things recovered and sentiment improved.

Basically, traders need to keep one thing in mind: Bitcoin is safe and untouchable by the SEC. It is not a security, and the SEC sees it as a commodity. Traders and investors who believe in Bitcoin have nothing to worry about; industry players will evolve and adapt according to the law, which they should have done in the first place. They know now that the era of the wild west is over, and if they want to come to the party, they need to dress up according to the rules.