The Sterling was left under immense pressure during trading on Thursday as the mounting Brexit anxieties repeatedly haunted investor attraction towards the currency. Most Pound pairs were already heavily depressed, and could be poised to sink to unforeseen levels in the event of a potential Brexit victory next week.
With the growing uncertainty acting as the driving force that empowers the Sterling bears, sellers have been gifted an opportunity to install a heavy round of selling across the board.
Investors directed their focus towards the Bank of England (BoE) policy announcement which was broadly expected to conclude with the central bank dismissing any notions of a UK rate rise. This should be no surprise following the ongoing Brexit woes and tepid domestic data which have obstructed any opportunity for the BoE to take action. Fears continue to linger over a potential technical recession from a Brexit and this has bolstered speculations of future interest rate cuts, consequently pressuring the Sterling further.
With less than a week left until the E.U referendum vote, uncertainty and anxiety should reach new heights which may amplify Sterling volatility further. It seems likely that the Brexit has not been truly priced in with the heaviest declines based on light speculative shorts. The GBPUSD remains bearish on the daily timeframe and a breakdown below 1.1400 could open a path towards 1.4000.
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Fed postpones again
Global markets were unmoved during trading on Wednesday following the mixed FOMC statement that concluded without a US interest rate rise. This was widely expected following May’s dismal NFP figure and the upcoming E.U referendum that sabotaged all efforts for the central bank to take action. Although there were no key changes in the statement, the revised dot plot which was projected lower was enough to warrant attention. While Janet Yellen has repeatedly stated that July could be a live possibility for a rate hike, this seems quite unlikely amid the global instabilities and mounting uncertainties. If US data continues to respect a positive path and employment improves, then September could be a possibility on the basis of renewed normality in the global economy.
With US rate hike expectations repeatedly push back, the Dollar was left naturally vulnerable and this can be viewed in the Dollar Index that sunk towards 94.00. Dollar Index bulls may have a chance to reclaim lost territory above 95.00 if US CPI follows a positive pattern and exceeds expectations above 0.3%. From a technical standpoint, it may either be a breakout above 95.00 or a breakdown below 94.00 depending on the direction of the pending CPI release.
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WTI bears dominate
WTI Crude bears continue to dominate as the week progresses as fears over the excessive oversupply heighten amid incessant rises in weekly US rig counts. Prices remain fundamentally bearish, and could be destined to decline lower when ongoing fears over a drop in global demand encourage bearish investors to install a heavy round of selling. With optimism over an OPEC deal almost out of the window and Iran incessantly pumping to reclaiming market share, low oil prices could be here to stay. From a technical standpoint, prices are trading below the daily 20 SMA and a solid breakdown below $47 should open a path towards $45.50.
Commodity spotlight – Gold
Gold prices experienced an incredible rally with prices surging to the $1313 highs as expectations rapidly faded over the Fed raising US rates in Q2. Wednesday’s slightly dovish FOMC statement combined with the renewed wave of risk aversion from the ongoing Brexit woes has bolstered the metal’s allure consequently providing an opportunity for buyers. This metal has turned bullish on the daily timeframe and ongoing Dollar weakness should offer the momentum needed for Gold prices to trade towards $1315 and potentially higher. From a technical standpoint, previous resistance around $1300 should act as a dynamic support that could encourage a further incline towards $1315.
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Otunuga is a research analyst at FXTM
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