BoE holds rates while Sterling spikes higher

The Bank of England shocked the global markets during trading on Thursday following the unexpected decision to keeping interest rates unchanged despite the mounting post-Brexit pressures. Concerns remain elevated over a potential Brexit fueled recession while the persistent Brexit uncertainty has punished the UK economy, but the BoE has decided to remain on standby.

Expectations were high over the central bank cutting rates by 0.25% in an effort to reclaim some economic stability but today’s decision has installed Sterling bulls with inspiration. Most on the MPC expect policy to be loosened in August and this should limit the upside gains viewed in the Sterling. Fundamentally nothing has changed, and if UK domestic data continues to follow a tepid path amid the Brexit anxieties, then further cuts and interventions by the BoE could be commonplace in the future.

The Sterling/Dollar spiked towards 1.347 following the BOE’s unexpected decision to keep rates unchanged but could trade lower once investors digest the reality of a future rate cut. From a technical standpoint, a decisive breakdown below 1.32 could open a path back down towards 1.28.

Dollar searches for direction

Dollar bulls displayed resilience during trading on Wednesday following the positive Beige Book report which signaled that the US economy continued to expand from mid-May through the end of June. This report comes at a time where the impressive NFP report for June showed US labor force resilience in a period of ongoing global instability. It seems that the overall US outlook has improved with retail sales, manufacturing and employment respecting a positive trajectory consequently fulfilling the domestic prerequisites for a US interest rate rise before year end. Although the rising US rate rise expectations continue to improve sentiment towards the Dollar, concerns still linger over the Brexit anxieties obstructing any efforts taken by the Fed to act. In this period of uncertainty, the Dollar searches for direction and the post-Brexit developments could offer the clarity investors seek.

From a technical standpoint, the Dollar Index has displayed some exhaustion above 96.00. A decisive breakdown below 96.00 could open a path towards 94.00.

Stock markets venture higher

Global stocks were elevated during trading on Thursday as the combination of optimism over central bank intervention and easing post-Brexit uncertainties boosted sentiment, consequently renewing risk appetite. Asian markets strolled into the green territory with the weakening Yen propelling the Nikkei +0.95% as expectations mounted over further stimulus measures in Japan amid the global instability. In Europe, stocks exceeded expectations consequently grasping new highs ahead of the heavily anticipated BoE monetary policy meeting. It seems likely that the positive domino from Asia and Europe may provide the foundation for Wall Street to edge higher on Thursdays open. Although the fierce short-term stock market rally could be commended, investors must remain diligent over the lingering impacts a Brexit could have on the UK and global economy. Concerns have heightened over a potential Brexit fueled recession in the UK and if this leaks into the global economy, sentiment could take a blow ultimately punishing global stocks.

Crude oil declines

Oil prices tumbled more than 3% on Wednesday with WTI Crude cutting below $46 after the crude oil inventories reported a smaller than expected crude oil inventory draw for the first week of July. This coupled with the fact that Saudi Arabia’s oil production was bolstered to almost 10.6 million barrels a day in June offered the encouragement for bears to install a heavy round of selling. Oil prices have been bearish for an extended period and may remain bearish as the incessant oversupply concerns haunt investor attraction. With fears still lingering that demand may be waning amid the fears over slowing global growth, oil prices may be poised to depreciate lower in 2016. The toxic combination of excessive oversupply and waning demand could force low oil prices to be the dominant theme moving forward.

From a technical standpoint, WTI Crude is bearish and a decisive breakdown below $44 could open a path towards $40.

Commodity spotlight – Gold

Gold has been on a rocky ride with prices violently swinging between losses and gains as a mixture of Dollar appreciation, renewed risk appetite and lingering Brexit concerns encouraged investors to systematically offload and reload positions. Regardless of the short-term fluctuations, this metal remains bullish and the ongoing fears over the global economy should keep prices buoyed. Although June’s impressive NFP installed a heavy of selling in the metal, this was short lived as expectations remain suppressed over the Fed raising US interest rates in 2016. Despite the optimism that central banks may intervene, uncertainty is still a central theme which should bolster this metal’s allure. From a technical standpoint, prices are trading above the daily 20 SMA while the MACD has also crossed to the upside. Gold may be in the process of creating a new higher low and a breakout above $1345 could open a path towards $1370.

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Otunuga is a research analyst at FXTM