Bulls help GBP recover

July 8, 2016

The US Dollar index sticks around Wednesday close as investors are waiting for preliminary employment reports from the US to start taking action. Yesterday’s release of FOMC minutes seems to have passed unnoticed, as the dovish position of the FED was already priced on the markets.

According to the report, The Fed will consider changes in its monetary policy as soon as Brexit after-effects manifest. This implies no rate hikes in the short-term period and relatively low odds of a rate hike till the end of this year because of high recession risk related to Brexit.

Long consolidation of buying power below 1.30 finally helped sterling bulls to stage a breakout. GBP/USD rose to the 1.3040 level, GBP/JPY rose to the 131.924 level, while declines on EUR/GBP slowed down near the 0.8500 key area. All three pairs suggest that price swings are produced by selling and buying activity with the GBP, emphasizing high speculative pressure on the UK currency. The GBP bulls receive additional stimulus to extend bidding as GBP/USD breaks the psychologically important 1.30 level.

EUR/USD for breaching the 1.11 level failed with bears taking control the pair declined 0.22% to 1.1075. The focus now is on the employment data – ADP Change, Initial and Continuous Jobless claims due today, and Non-Farm Payrolls data is due tomorrow. It is important to note that ahead of the NFP data Fed underlined in their report that frustrating headline figures for May were probably a “statistic noise” suggesting that gloomy expectations for June payroll data could be short-sighted. ADP forecast is 160K, Initial Jobless claims at 267K and Continuing claims at 2110K.

Oil traders are waiting for the weekly release of the EIA Crude Inventories report to help crude prices extend retracement. The estimate of American Petroleum Institute showed that commercial reserves have shrunk by 6.7M barrels last week and we are likely to see confirmation of the decline by the US energy department. Despite positive data from the US, there is a warning from Asia where Chinese fuel consumption and other Asian countries is expected to go down amid the global slowdown risks. 50$ for barrel now became a tough ceiling for crude prices with downbeat forecasts in Europe and Asia.

German Industrial Production in May missed expectations, falling to -0.4% vs.1.5% estimated growth. Germany, being the driver of European economy growth, shows signs of industrial production what could be a warning signal for the Eurozone staying on the brink of a banking crisis.

Meanwhile, Industrial production in the UK showed positive change, dropping by 0.5% vs. -1.0% forecast which indicates that the manufacturing sector feels better than projected by some doomsayers.

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