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Video / 30 August 2017 at 7:20 GMT

From the Floor: Gasoline, oil diverge on Harvey's impact — #SaxoStrats

   • JPY dumps again as risk sentiment rebounds
   • Trump response to latest North Korean threats muted
   • Downside break of 1.1910 in EURUSD could place 1.17 in view
   • Gasoline and crude prices diverge as Harvey heads east
   • Core bonds close to year-to-date record

By Michael McKenna

Hurricane Harvey has already knocked out 25% of the US' entire refining capacity with production down to 4.1 million barrels/day, says Saxo Bank head of commodity strategy Ole Hansen. 

Although the full scope of the potential damage has yet to be worked out, he adds, the fact that the storm is presently headed east towards the refining strongholds of Beaumont and Port Arthur, Texas, means that the event risk is far from over for the US energy sector.

"We are seeing a divergence between gasoline and crude oil prices as the former spikes on supply cuts and the latter tumbles on a lack of demand," reports Hansen. 

"At this point, the market is driven by fear".

The massive disruption means that today's inventories data – as well as the releases slated for the coming weeks – from the Energy Administration are not likely to have a significant impact on markets, Hansen says.

Beyond oil and gasoline, today's forex, fixed income, and equities markets are all feeling the effects of a risk-on surge in place despite a renewed bout of sabre-rattling from North Korea over the US territory of Guam.

One reason for the market's casual treatment of Pyongyang's threats may be the response of US president Donald Trump, which Saxo Bank head of forex strategy John J Hardy describes as "muted and diplomatic".

With the USD gaining ground and financial markets apparently sanguine, Hardy reports that "what we see unfolding [in major USD pairs] might be significant". Overnight, he reports, the JPY dumped again while EURUSD eyes support at 1.1910 as traders deleverage.

"A downside break of 1.1910 could place 1.17 and even 1.16 or 1.15 in view," says Hardy.

Today's report from the Bank of England at 0945 GMT, along with German inflation data at 1200, could see a pronounced reaction in EURGBP if the data continue support a euro backslide.

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Source: Saxo Bank 

The risk sentiment rally sees gold on the defensive with the precious metal now mainly supported be geopolitical risks as stocks, bonds, and the dollar all point to a flight from safe havens.

According to Saxo Bank head of commodity strategy Ole Hansen, XAUUSD resistance currently sits at $1,337/oz with support at $1,295 and $1,277/oz.

Geopolitical fears may be muted into today's session, but global instability continues to be supportive ob core bonds which are close to their year-to-date record levels, says Saxo Bank head of fixed income strategy Simon Fasdal.

"This is impressive given macro data, central banks, and equities," adds Fasdal, noting that emerging market assets – both stocks and bonds – are continuing their bull run.

"It's unwise to rule out EM at this point," he reports.

While Berlin is set to release its latest inflation data at 1200 GMT, it is tomorrow's Eurozone and US inflation prints that are most crucial for the continuation of the current trends.

Beyond inflation, we have the US out with employment numbers at 1215 GMT and Canada reporting payroll figures at 1230 GMT.

Emergency vehicles fight flooding in Houston, Texas: Hurricane Harvey has already taken out a big chunk of the US' refining capacity and the storm is still raging. Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank
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