The Seller's market

October 12, 2016

Tuesday could be unofficially declared as the seller’s market across the financial arena with major equities and currencies all encountering heavy selling momentum during trading on Tuesday. The only asset class that seemed to benefit was the Dollar, which has lurched to seven-month highs, while major equities declined into the red and the GBPUSD plunging to levels not seen in a generation.

Away from the Pound headlines, Gold has entered the month of October appearing depressed with the yellow metal suddenly falling to a four-month low below $1245 after unexpectedly crashing through the psychological $1300 support at the beginning of the month. Selling momentum has definitely intensified in recent days across metal trading on speculations that the case for a US interest rise before the end of 2016 has strengthened. The Dollar Index is currently trading at its highest level in around seven months which is subsequently putting further pressure on safe-haven assets while weighing on equities and global currencies.

Speaking of equities, most were painted in red on Tuesday as oil price volatility and anxiety ahead of Wednesday’s Fed minutes repelled investors from riskier assets. Asian stocks have already commenced Wednesday on a shaky footing amid risk aversion and this bearish contagion could infect European markets later today. Wall Street was swift to relinquishing gains following the disappointing corporate earnings with further losses expected as slumping crude prices and mounting rate hike hopes sour risk appetite.

Fed minutes in focus

Dollar bulls have been dominant in October with the Greenback suppressing other currencies as expectations mount over the Federal Reserve raising US interest rates in December. Lasts week’s mixed jobs reports have been accepted by the markets as part of the attributes which provide a compelling reason for a US interest rate increase before year-end. The Dollar Index currently trades around seven-month highs and could edge higher as optimism rises over the Fed taking action.

Investors may pay very close attention to the latest FOMC meeting minutes on Wednesday evening with participants around the globe seeking direction on the future pace of US interest rate rises. The pending Fed minutes could be a market shaker considering the growing divergence of opinions for interest rate hikes. Much focus may be placed on the three dissents with investors searching for clues on the depth of the hawkish rebel camp and where the Fed sentiment stands.

If the latest minutes have a hawkish feel then the Dollar Index which is already technical bullish could edge higher with prices trading towards 98.00. From a technical standpoint, previous resistance at 97.50 could transform into a dynamic support which encourages a further incline towards 98.00.

Sterling still pressured

The mounting hard Brexit fears continue to grip the Sterling with sellers attacking incessantly at any given opportunity. Sterling has recorded its worst four-day performance since the Brexit vote with the GBPUSD sinking towards 1.21 on Tuesday and further declines could be expected in the future as confidence wanes over the post-Brexit UK economic outlook. It is becoming quite clear that the flash crash last week Thursday has left a damaging impact on the Sterling with weakness becoming a dominant theme as buying sentiment towards the currency diminishes.

The GBPUSD remains heavily bearish on the daily timeframe with steeper losses expected as expectations heighten over the Federal Reserve raising US rates in December. A decisive break down below 1.2200 could open a path towards 1.2000.

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