Morgan Stanley reduced its Brent crude price forecasts for the second time in a matter of weeks, as demand challenges mount while supplies remain plentiful.

The global benchmark will average US$75 (RM327.69) a barrel in the fourth quarter, according to a note from analysts including Martijn Rats. That compares with an earlier projection of US$80 between October and December, which was issued just last month in a cut from the prior outlook for US$85. Predictions for most of next year were also pared back slightly.

Brent recently tumbled to the lowest close since late 2021 as sustained concerns about weaker Chinese demand fused with signals that the US economy may be slowing. At the same time, output remains ample, forcing Opec+ to defer a plan to relax its own production curbs.

“The recent trajectory of oil prices has similarities to other periods with considerable demand weakness,” Rats and his colleagues said in the report on Monday. Time spreads — price comparisons along the futures curve — indicated the coming of “recession-like inventory builds”, although it was too early to make this the bank’s base case, they said.

Morgan Stanley’s rethink about the outlook has been echoed by concerns at other leading banks. Goldman Sachs Group Inc pared its view last month, while more recently Citigroup Inc said the market looked oversupplied and prices could average US$60 a barrel in 2025 unless Opec+ cut deeper.

Brent — which sank almost 10% last week — traded near US$72 a barrel on Monday, with major commodity trader Trafigura Group telling an industry conference in Singapore that the price was set to drop into the US$60s in the near future. 

Source: Theedgemarkets

Gold remains at the back foot at the start of the week, after last Friday’s 0.8% drop and a weekly close below $2500.

The metal’s price was deflated by US labor data on last Friday, as employment increased below expectations but unexpected drop in jobless rate cooled fears about stronger weakness in the labor sector, contributing to bets for Fed’s rate cut by 0.25% rather than more aggressive approach with 50 basis points cut.

Markets shift focus towards release of US inflation data for August, due later this week, which will provide more details about Fed’s decision in September’s monetary policy meeting.

On the other hand, the yellow metal remains underpinned by growing concerns about the situation in the US economy, as well as persisting geopolitical tensions, which adds to scenario of prolonged consolidation before the price resumes higher.

Technical picture remains bullish overall despite daily studies somewhat weakened, with larger bullish bias to stay intact while the price holds above three-week range floor at $2470 zone.

Three consecutive weekly Doji candles point to strong indecision and signal prolonged sideways mode, with mixed daily studies (14-d momentum turned negative, stochastic and RSI remain in positive territory, MA’s in mixed configuration) contributing to current picture.

Technical studies still favor scenario of $2470 pivot holding dips and offering fresh buying opportunities however, fundamentals are likely to play a key role and to gold’s key driver in the near term.

In case $2470 support is lost, stronger pullback towards $2431 (rising 55DMA) and $2400/$2390 zone (psychological / 100DMA) in extension, could be likely scenario.

Conversely, bulls may strengthen grip if the price returns and stabilizes above $2500 level and shift focus towards new all-time high at $2531, violation of which to spark fresh acceleration higher.

Res: 2500; 2505; 2523; 2531.

Sup: 2485; 2474; 2470; 2457.

Source: ACTIONFOREX

Above: GBP/EUR at daily intervals.

Source: Poundsterlinglive

The Mexican Peso (MXN) trades flattish and mixed on Monday after a week in which it lost between 1.3% and 1.6% in its most traded pairs, extending the downtrend – albeit at a slower pace – established since the April 2024 highs. 

The Peso is depreciating on a combination of investor concerns over controversial new judicial reforms, uncertainty over the US presidential election and its impact on trade, and the unwinding of the carry trade – now less attractive since the Peso started trending lower. 

Mexican Peso depreciates at slower pace 

The Mexican Peso depreciated at a slower rate last week compared to previous weeks, both due to stubbornly high headline inflation in Mexico, which is making the Bank of Mexico (Banxico) cautious about making further cuts to interest rates, and the weakness of its counterparts, in particular the US Dollar. 

Although Mexican core inflation is steadily falling back towards the Banxico’s 3.0% target after registering a 4.05% rise in core prices in July, headline inflation remains elevated and actually accelerated for the fifth month in a row to 5.57% in July from 4.98% previously.  

Banxico cut interest rates by 0.25% to 10.75% at its August meeting but the vote was a close call as two of the Bank’s five-strong board – Jonathan Heath and Irene Espinosa – dissented due to continued concerns about elevated headline inflation. 

In a speech on Thursday, Heath – one of the dissenters – said that there was “still no certainty” as to when food prices would cool, according to El Financiero. The rising cost of fruit is a key contributor to the elevated headline rate of inflation. 

Although Heath added that Banxico expected food prices to fall, he added that there was no way of knowing “when and by how much”. Stubbornly high inflation in the services sector of the economy was another factor keeping overall inflation elevated, he added. Heath's uncertainty suggests he may continue voting against easing policy in future meetings. If interest rates remain high in Mexico, it will be a supportive factor for the Peso, since higher interest rates attract greater capital inflows.

Mexican payrolls data shows slowdown in hiring

A further factor that could influence Banxico’s decisions on monetary policy are continued signs of a slowdown in the labor market. Mexican payrolls rose at their slowest pace in 40 months, increasing by only 58,047 in August, according to data from IMSS, which measures the number of new contributors to social security. 

A combination of slowing economic growth, lower growth forecasts, employers delaying hiring because of uncertainty due to concerns around the government’s reforms to the judiciary and the outcome of the US presidential elections, were factors impacting the creation of new jobs, according to El Financiero.  

Subdued employment in Mexico may encourage the Banxico to be bolder in cutting interest rates despite high inflation, which, in turn, could be a negative factor for the Peso.  

At the time of writing, one US Dollar (USD) buys 19.94 Mexican Pesos, EUR/MXN trades at 22.08, and GBP/MXN at 26.14.

Technical Analysis: USD/MXN trades in a mildly bullish channel 

USD/MXN has pulled back down from the new 2024 highs it touched at 20.15 on Thursday and is currently trading back inside a familiar range in the 19.90s. 

The bearish Shooting Star Japanese candlestick the pair formed on Thursday failed to gain confirmation and follow-through lower. Instead, the pair continued a mildly bullish rising channel between the 20.15 high and lows in the mid 19.80s. 

USD/MXN 4-hour Chart 

The channel itself is unfolding within a broader rising channel that began from the April 2024 lows. 

The overall trend remains bullish, and since according to technical analysis theory “the trend is your friend,” this favors more upside. As such, any weakness may be temporary before the pair rallies again.

A break above the top of the mini-channel and 20.15 high of the year, would provide added confirmation of a continuation of the bull trend, with the next target at the upper channel line in the 20.60s.  

Source: FXSTREET

The USD/JPY pair attracts fresh buyers at the start of a new week and reverses a major part of Friday's losses to the 141.75 area or over a one-month low. Spot prices maintain the bid tone through the early European session and currently trade around the 143.20 mark and draw support from a combination of factors.

The Japanese Yen (JPY) is pressured by a downward revision of the second quarter Gross Domestic Product (GDP) print, which, in turn, is seen as a key factor acting as a tailwind for the USD/JPY pair. Official data published earlier today showed that Japan's economy grew at a slightly slower pace, by an annualized 2.9% in the April-June quarter as compared to a 3.1% rise in the preliminary estimate. This, along with a sluggish consumer spending growth in July, might complicate the Bank of Japan's (BoJ) plans to hike interest rates in the coming months.

Apart from this, a generally positive tone around the European equity markets is seen undermining demand for the safe-haven JPY. The US Dollar (USD), on the other hand, builds on Friday's recovery from over a one-week low amid an uptick in the US Treasury bond yields, bolstered by reduced bets for a 50 basis points (bps) interest rate cut by the Federal Reserve (Fed) later this month. This further contributes to the USD/JPY pair's intraday positive move, though the divergent BoJ-Fed policy expectations warrant some caution before positioning for further gains. 

The BoJ Governor Kazuo Ueda said last week that the central bank will continue to raise interest rates if the economy and prices perform as expected. Adding to this, an unexpected rise in Japan's real wages for the second straight month in July keeps hopes alive for another BoJ rate hike by the end of 2024. Hence, it will be prudent to wait for strong follow-through buying beyond the 143.75-143.80 horizontal support breakpoint before confirming that the USD/JPY pair's recent downfall has run its course and positioning for any further appreciating move.

Source: FXSTREET

EUR/GBP retraces its recent gains from its previous session, trading around 0.8440 during the European hours on Monday. The Euro faces challenges as recent eurozone inflation data have solidified expectations of a rate cut by the European Central Bank (ECB) at upcoming Thursday's policy meeting.

With headline inflation nearing 2% and long-term inflation forecasts holding steady around the same level, the ECB has sufficient justification to ease its monetary policy stance further. Additionally, last week's mixed Gross Domestic Product (GDP) data from the Eurozone has reinforced expectations of a potential rate cut by the ECB.

The slowdown in growth is fueling concerns that excessively high interest rates may be stifling economic expansion, echoing remarks made by ECB Executive Board member Piero Cipollone. Cipollone warned of "a real risk that ECB's stance could become too restrictive," further highlighting the potential impact of the current monetary policy on growth.

The Pound Sterling (GBP) may remain steady as investors await the United Kingdom's (UK) employment data for the quarter ending in July, set to be released on Tuesday. This labor market report could shape market expectations regarding the Bank of England's interest rate decisions for the rest of the year.

Estimates suggest the ILO Unemployment Rate may dip slightly to 4.1% from the previous 4.2%. Meanwhile, Average Earnings, including bonuses, are projected to ease to 4.1%, down from the prior 4.5% figure. Slower wage growth could heighten expectations for further interest rate cuts by the Bank of England, as it would indicate a potential decline in inflation within the services sector.

Source: FXSTREET