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FX Friday Global Currency Review & Forecast For 9-30-16

Economic News
All Eyes on German Banking Sector

It wasn’t supposed to come to this. The Germany banking sector is commanding the focus of market participants this week. Germany’s second largest bank Commerzbank announced a 20% reduction of staff this week. Also this week, large hedge funds reduced their exposure to Germany’s largest bank, Deutsche Bank, and its stock price plummeted. Troubles at Greek, Portuguese and Italian banks have been simmering for years. For most market participants, the southern European banking sector was the one, if any, to cause market concern or panic, not Germany’s which is considered to be the heart of European banking and finance.

It was largely expected that if there was to be any weakness in the European banking sector the first real crack would come from the southern European Banks, not from the center of European banking.

Until today the dollar, gold and silver have largely ignored Germany’s embattled banking sector troubles. This morning, gold and silver were up about 0.75% and 3%, respectively. Gold and silver are viewed as safe haven assets.

The Dollar Index* continues to hold one month highs from the boost it received from continued Fed rate hike chatter after the Fed’s September 20-21 meeting. Even though rates were not raised at that meeting, several Fed officials have made the rounds talking about a rate hike in December. The Dollar Index has held at about 95.50 since the Fed September announcement that there would be no interest rate hike. Germany banking troubles are also acting to boost the Dollar Index in lieu of a rate hike.

The vast majority of surveyed market participants do not expect a rate hike at the November meeting. Market participants are mixed regarding the possibility of a rate hike at the Fed’s December meeting.

Gold and Silver

Gold rose immediately prior to and after the Fed September meeting. Gold has traded in a range between $1308-1350 in September, further consolidating it gains from earlier in the year. Gold has held, however, above $1,300 an ounce all of August and September. Gold broke to the upside from the low end of its September trading range following the Fed’s September 20-21 meeting. Gold ended last week at $1338 an ounce. This week, gold drifted lower until today when Germany banking issues dominated the headlines. Gold was trading at $1328 an ounce Friday morning.

Year to Date Dollar Index, Oil and Gold Prices

gold oil dollar ytd september 30 2016 bgasc

Silver also popped after the September Fed meeting and touched briefly over $20 an ounce. Profit taking and rate hike talk had pushed silver down below $19.00 an ounce last week. Today silver spiked 3% on Germany banking concerns and topped $19.60 an ounce in early morning trade. Silver continues to be the best performing asset in 2016, rising well over 40% in 2016. The price of silver is at its highest levels in two years, but far below its all time high of $50 an ounce reached in April 2011.

Year to Date Dollar Index, Oil and Silver Prices

silver oil and the dollar ytd september 30 2016 bgasc


Oil shot higher this week as a result of OPEC’s decision to cut production. Oil rose the first six months of 2016. Since then, oil had been trading on news of stockpiles and the possibility of output freeze talks. During the past few months, oil spiked and fell on inventory reports and from talks about upcoming meetings among oil producers to discuss output freezes or cuts. The OPEC decision to cut output this week has pushed oil back to the upper $40 a barrel range.

What’s next?

The Germany banking sector woes and the U.S. Presidential campaign should focus much of market participants’ attention next week. The important Non Farm Payroll number will be released on Friday.

Here are some economic reports that could impact gold, silver and currency movements next week:
Oct 3 ISM Index Sep
Oct 3 Construction Spending Aug
Oct 3 Auto Sales Sep
Oct 3 Truck Sales Sep
Oct 5 MBA Mortgage Index 10/01
Oct 5 ADP Employment Change Sep
Oct 5 Trade Balance Aug
Oct 5 Factory Orders Aug
Oct 5 ISM Services Sep
Oct 5 Crude Inventories 10/01
Oct 6 Challenger Job Cuts Sep
Oct 6 Initial Claims 10/01
Oct 6 Continuing Claims 09/24
Oct 6 Natural Gas Inventories 10/01
Oct 7 Nonfarm Payrolls Sep
Oct 7 Nonfarm Pri. Payrolls Sep
Oct 7 Unemployment Rate Sep
Oct 7 Hourly Earnings Sep
Oct 7 Average Workweek Sep
Oct 7 Wholesale Inventories Aug
Oct 7 Consumer Credit Aug

* The US Dollar Index tracks the US dollar vs. the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona and the Swiss Franc. The Euro comprises nearly 58% of the index.

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This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.