Sterling cliff dives on hard Brexit fears

October 7, 2016

Sterling/Dollar was exposed to extreme losses during early trading on Friday with prices flash crashing to 1.184 as the chaotic combination of heightened Brexit anxieties and thin liquidity encouraged sellers to attack incessantly. The currency was already immensely pressured this week with reports of French president Holland saying that Britain must follow through with a hard Brexit potentially sparking the shocking market shaking selloff. Sterling remains vulnerable to further losses in the future as uncertainty over how the Brexit negotiations will take place after the article 50 is invoked haunts investor attraction towards the currency. Sentiment towards the pound is clearly turning bearish by the day with bulls potentially waving the white flag as the Brexit jitters become deep rooted.

Investors may direct their attention towards the manufacturing production report which could provide some clarity on how the sector has fared post vote to leaving the European Union. Brexit fears may have mutated to new levels and this could create a situation where positive UK data falls on deaf ears with uncertainty keeping the currency subdued.

The GBPUSD has crashed over 750 pips in less than 24 hours and when one factors the possibility of the Federal Reserve potentially raising US interest rates in December, prices could descend lower back towards the 1.2000 regions. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A weekly close back below 1.2400 could encourage a further decline towards 1.2200.

NFP in focus

Dollar bulls were unleashed on Thursday with the Dollar Index charging to fresh 2 month highs around 97.00 following the impressive employment data which reinforced expectations over the Federal Reserve raising US interest rates in December. Data from the States has repeatedly beaten this month heightening hopes of the Fed potentially breaking its trend of central bank caution in 2016. Much attention will be directed towards Friday’s NFP which if exceeds estimates could be the welcome boost needed for the Dollar Index to lurch towards 98.00. From a technical standpoint, the Dollar Index is bullish on the daily timeframe and a breakout above 97.00 triggers a further incline towards 98.00.

WTI Crude breaks above $50

WTI Crude was uplifted on Thursday with prices charging above $50 as the combination of a surprise plunge in US crude oil inventories and rising optimism over OPEC freezing production in the pending OPEC meeting enticed buyers. While the gains displayed are quite impressive, the upside may be capped if the lingering fears over the oversupply encourage bears to jump in near resistance. It may be too early to determine the sustainability of the current oil rally with investors awaiting the meeting on November 30th for further clarity and direction. It should be kept in mind that although OPEC has agreed that production may be cut up to 700,000 barrels a day, this has not been officiated which creates a sense of uncertainty. WTI could be exposed to downside pressures if the pending meeting leaves investors empty handed once again.

Commodity spotlight – Gold

Gold has been left vulnerable to heavy losses this week with prices tumbling to levels not seen since June 2016 at $1250 following Dollars resurgence which provided a foundation for bears to install heavy rounds of selling. The heavy decline was amplified by the rising optimism over a US rate increase this year which consequently repelled attraction towards the zero-yielding metal. Investors may direction much attention towards Friday’s NFP which if beats expectations could drive Gold prices much lower. From a technical standpoint, the precious metal remains under immense pressure as prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A solid weekly close below $1250 could trigger a further decline lower towards $1225.

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