Although the weak sentiment towards the Dollar has been providing bullish direction for the Pound for some time, the GBPUSD managed to climb to a 2015 high at 1.5846 following further USD pressure and UK jobless claims providing a reminder to investors that the UK economic outlook is attractive.
The announcement that UK unemployment fell once again, while wages also increased improved investor attraction towards the Pound; but it will not move UK interest rate expectations with inflation remaining very weak. Can the GBPUSD continue to gain? It really depends on how long this weak Dollar sentiment lasts because this has been the major catalyst behind the recent GBPUSD bullish drive. While the UK economic outlook is attractive to traders, we are still at least a year from a UK rate increase and this will at some point put a limit on Pound gains.
The Euro continues to ignore all potential Greece risks and has managed to extend to 1.1374 against the Dollar, which is very close to the 1.14 major resistance that had previously encouraged a sell-on rallies opportunity. All headline attention remains on Greece, and there is little chance of this changing with there being just under two weeks remaining until a possible Greek default. I find it quite unbelievable that the markets continue to ignore the possible implications that a Greek default could install on the financial markets. If I were an investor, I would be more concerned about the unknown, with this being a Greek default leading to a likely sudden rush of downside pressure across at least the Euro and European markets, rather than another upside bounce if optimism emerges that a deal has been concluded.
The bottom line is that we are approaching a real critical day of negotiations to avoid a disastrous Greek default, and I do think the Euro is vulnerable to extreme downside pressures that we haven’t even yet seen being priced in. While it is in many ways completely right for spotlight to be firmly placed on Greece, the recent comments from Merkel and previously from Coeure when the Euro was trading close to 1.14 against the Dollar encourages me to believe that it wouldn’t be a major surprise if someone else tries to talk down the Euro fairly soon.
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Despite the Federal Reserve repeating their commitment to raising US interest rates later this year once again, Gold felt no downside movement and has managed to extend some minor gains towards $1190. I think it was the Federal Reserve’s downside economic projections that installed the bullish momentum in Gold yesterday. As improved economic performances from the United States continue to be announced, confidence will improve that the Federal Reserve really will be raising interest rates and this is when I expect Gold to begin feeling some pressure. While there are arguments that a US interest rate rise has already been priced into the USD, there will still be a Dollar reaction and it wouldn’t surprise me if Gold falls to a 2015 low by the time the Federal Reserve finally pull the trigger and raise rates.
While WTI managed to rally once again on another reduced trade surplus after the weekly US inventories report, the bears snapped up any gains and managed to drive WTI nearly $3 lower to $58.84. When you consider that OPEC left production unchanged once again two weeks ago, it is no real surprise that there is hesitation from investors to enter fresh positions. Although reduced trade surpluses are becoming common from the United States, it is clear investment in oil production from OPEC members is increasing, and this will offset reduced inventory from elsewhere. Oversupply has been the dominant theme in the oil markets for a year now, and it will also inspire continual low oil prices for a long time yet. OPEC supply is now at highest level since August 2012, which will continue to weigh on investor sentiment.
Follow Jameel on Twitter @Jameel_FXTM
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