Sterling pressured by BoE doves

July 1, 2016

Sterling bears were unchained during trading on Thursday following Bank of England’s Governor Mark Carney’s incredibly dovish comments which cemented expectations over a probable UK rate cut in 2016. The Brexit woes have exposed the United Kingdom to downside risks while concerns remain elevated over a potential slowdown in domestic economic momentum. Even before the Brexit saga, the nation was entangled in a losing battle with static inflation and soft economic data, which dimmed optimism over a rate hike in 2016. Sentiment remains bearish towards the Sterling and any recovery in value could be difficult as investors prepare for stimulus measures implemented by the BoE.  With the persistent post-Brexit uncertainty and mounting rate cut expectations haunting investor attraction towards the Sterling, bears have been gifted another opportunity to install a heavy round of selling.

From a technical standpoint, the GBPUSD remains bearish and the breakdown below 1.3350 could open a path lower towards 1.3200.

Global stocks trade higher

Global stocks received a welcome boost during trading this week as the combination of easing Brexit fears and optimism over central bank intervention renewed investor risk appetite. Asian equities lurched into gains on Friday borrowing the overnight momentum from Wall Street with the Nikkei trading +0.47% higher. European stocks surged with ferocity following BoE Carney’s dovish comments that consequently caused the FTSE100 to hit fresh 10 month highs. Wall Street casually strolled into the green territory on Thursday and could trade higher today if the bullish contagion from Europe and Asia elevate American stocks. Although sentiment has displayed signs of improvement this week amid the easing Brexit fears, investors should be cautious of this rally as risk aversion remains rife while fears over the global economy linger in the background.

Dollar bears on the prowl

The Brexit has amalgamated to the toxic mixture of events which have incessantly obstructed all efforts taken by the Federal Reserve to raise US rates in 2016. There was already a myriad of barriers which have repeatedly pushed back US interest rate hike hopes and the unexpected Brexit victory may have secured expectations that US rates will not be increased at all in 2016. With optimism rapidly diminishing over any rate hikes, the Dollar could be exposed to losses moving forward. It must be kept in mind that one of the main drivers behind the Dollar rally was the heightened US rate hike expectations and with this discounted sellers could exploit this opportunity to send the Dollar lower across the board. The Dollar Index currently displays resilience, but a decisive weekly close below 96.00 could open a path towards 94.00.

Gold bulls attack

Gold surged with vitality during trading on Friday with the metal spiking towards $1335 as risk aversion and optimism over central bank intervention encouraged investors to pile on the longs. This precious metal remains fundamentally bullish and could be destined for more gains when investors make a flight to safe-havens amid the concerns over the global economy. With the Dollar set to decline as optimism fades over the Federal Reserve raising US rates in 2016, Gold could remain elevated with targets stretching $1350. From a technical standpoint, prices are trading above the daily 20 SMA while the MACD has crossed to the upside. Previous resistance around $1308-1300 could act as a dynamic support which triggers an incline towards $1350.

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