Sterling bears were on the offensive during trading on Tuesday as the ongoing post-Brexit anxieties and mounting expectations over a potential UK interest rate cut in the future repelled investor attraction towards the currency. Since last week the Sterling has been provided with an array of lifelines from the BoE’s inaction to MPC member Martin Weale stating that there was no urgency to cut interest rates. Regardless of these events that have propped up the Sterling, prices are still fundamentally bearish and further declines could be expected as the toxic combination of lacklustre economic data and persistent post-Brexit uncertainty encourages investors to install another round of selling. Although UK CPI y/y exceeded expectations at 0.5% today, this did little to repel the Sterling bears from dragging prices lower.
It should be kept in mind that speculation continues to mount over the BoE adopting a range of easing measures in the future to quell the post-Brexit chaos and this could obstruct any real recovery in the value of the Sterling. The GBPUSD is fundamentally bearish and the growing divergence in monetary policy between the BoE and Fed could ensure that the pair remains depressed for an extended period of time. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. A breakdown is pending with 1.2800 looking like a potential goal.
Dollar buoyed by US rate hike hopes
Sentiment is turning bullish towards the US economy and the repeatedly improving domestic data has bolstered expectations over the Federal Reserve raising US rates before year end. For an extended period, US data has followed a positive trajectory with June’s impressive NFP report displaying signs of labour force reliance in a period of global instability. It seems that firm retail sales, GDP, and employment have fulfilled the domestic prerequisites needed for the Fed to take action. Although the sentiment is turning bullish towards the Dollar, the ongoing Brexit anxieties could act as an obstruction which sabotages the Feds effort to raise US rates.
The Dollar Index has turned firmly bullish on the daily timeframe as prices are trading above the daily 20 SMA while the MACD has also crossed to the upside. 96.00 looks like a firm support and bulls could use this platform to propel the Index towards 97.00 and potentially higher.
Commodity spotlight – Gold
Gold edged higher on Tuesday with prices trading around $1335 as the ongoing concerns over the global economic landscape encouraged investors to flock towards safe-haven assets. Although expectations have risen over a potential US rate hike in 2016 following the improving US data, Gold could still trade higher if the persistent post-Brexit concerns renew a wave of risk aversion. This metal may be in the process of creating a new higher low around $1320 and a potential breakout above $1345 could open a path towards $1370. A decline below $1320 could leave the metal vulnerable to further losses.