07:24
Bullish dollar investors were left empty handed on Wednesday following the balanced FOMC minutes which provided little clarity on when the Fed may break the tradition of central bank caution. Although a majority of Fed members were in agreeance of the current economic outlook post Brexit, the visible divide on when to raise US rates left the dollar vulnerable to losses.
Before the passive FOMC minutes, some hawkish Fed members came forward to plant the idea of a September US rate hike, but this did little to dispel the period of uncertainty. The overall outlook for the US economy is still somewhat encouraging, but conflicting data this month has caused US rate expectations to constantly fluctuate.
Dollar sensitivity remains a recurrent theme in the currency markets, with anxiety potentially mounting ahead of September’s FOMC meeting.
Investors may direct their attention towards the unemployment claims report which could offer further insight on the health of the US economy in a time of global uncertainty. If US employment continues to display signs of resilience in a period of instability then optimism could heighten over the Fed taking action before the end of 2016.
The Dollar Index remains under pressure and is currently bearish on the daily timeframe. The breakdown below 94.50 could entice sellers to drag prices lower toward 94.00.
UK retail sales defy expectations
Sterling bulls were installed with inspiration on Wednesday following July’s blockbuster retail sales of 1.4% which dispelled concerns over a slowdown in economic momentum. The persistent pound weakness may have enticed tourists to spend in the UK while good weather boosted clothes sales.
This has been a solid week for the sterling, with the string of positive domestic data not only questioning the persistent Brexit fears but also elevating overall sentiment. While recent data has been undeniably encouraging, it still may be too early to gauge the ramifications of the Brexit to the UK economy.
As of now, expectations remain elevated over the Bank of England implementing further stimulus to stabilize the UK economy while the lingering uncertainty continues to haunt investor attraction towards the sterling.
Although the GBP/USD lurched towards 1.3170 following the firm releases, the potential divergence in monetary policy between the Fed and BoE could encourage sellers to install repeated rounds of selling. From a technical standpoint, the GBP/USD is in the process of fulfilling the prerequisites of an uptrend on the daily timeframe, but bears could sabotage this if prices fail to close above 1.3100.
Japanese trade shrinks in July
Sentiment towards the Japanese economy received repeated blows following the dismal trade data for July which reinforced concerns over slowing economic growth. Exports tumbled by roughly 14%, simply representing the worst decline since the global financial crisis, with yen’s resurgence weighing heavily on overseas shipments.
The negative sentiment was complimented with a mammoth 25% collapse in imports which renewed fears of weak consumer spending across the Japanese economy, consequently leaving the Bank of Japan under further pressure.
Despite the influx of weak data which continues to heighten fears over the health of the Japanese economy, the yen has strengthened, which has nothing to do with an improved sentiment but risk aversion. Japan remains entangled in a losing battle with static inflation while the unstable global landscape continues to expose the nation to downside risks.
Although the BoJ have repeatedly discussed the possibility of further intervention to stimulate growth, previous instances of under delivery of stimulus measures have caused such statements to fall on deaf ears.
With risk aversion rife in the markets, yen strength could be a dominant theme, which may ensure the USD/JPY remains depressed. From a technical standpoint, the USD/JPY is bearish on the daily timeframe as there have been consistently lower lows and lower highs. A decisive break down below 100.00 could open a path towards 99.00.
Eurozone July CPI 0.2%
Uncertainty caused by Brexit has noticeably pressured the Eurozone, with the overall economic outlook still unstable as anxiety weighs heavily on sentiment. Concerns still linger over the soft second quarter GDP while optimism over the ECB reaching the golden 2% inflation goal continues to diminish.
Although July’s inflation figure hit expectations at 0.2%, this still remains somewhat static, with expectations heightening of further stimulus measures implemented by the ECB.
The EUR/USD lurched higher this week, and this has nothing to do with an improved sentiment towards the euro but dollar weakness. If dollar weakness persists amid the fluctuating US rate hike expectations, then EUR/USD bulls could send the pair higher. From a technical standpoint, prices have turned bullish on the daily timeframe and a breakout above 1.1300 could open a path towards 1.1400.
WTI crude challenges $47
The rising optimism towards a potential production OPEC freeze deal in September has sparked speculative boosts in oil prices, which paved a path for bulls to send oil towards $47.00. Regardless of these short-term gains, oil still remains fundamentally bearish and recent reports of Saudi Arabia output hitting record levels could pressure prices in the future.
Concerns still linger over the excessive oversupply in the markets while fears of a decline in demand have weighed on prices. While current gains are impressive, it should be kept in mind that the combination of dollar weakness and oil price sensitivity has created the explosive gains.
If the informal OPEC meeting in September concludes without a production freeze then current gains could be swiftly relinquished. Although WTI bulls are back in control, bears could still have a chance below $44.
