The Dollar displayed extreme signs of sensitivity on Tuesday with prices left vulnerable to heavy losses as expectations fluctuated over the Federal Reserve raising US interest rates in 2016. Conflicting data such as the strong NFP and poor retails sales have placed the Dollar in a fierce tug of war with investor anxiety mounting ahead of Wednesday’s FOMC meeting minutes. Although US CPI for July remained unchanged at 0%, hawkish comments from the New York Federal Reserve President William Dudley on the possibility of a September hike successfully elevated the Dollar higher. With Dollar sensitivity becoming a dominant theme, further explosive movements could be expected ahead of September’s FOMC meeting.
Investors may direct their attention towards the FOMC meeting minutes which could provide some direction on when the Fed may break the trend of central bank caution by raising US rates. In July financial markets were offered a breath of fresh air from the hawkish statement which amplified expectations over the Fed taking action. The central bank acknowledged the stabilisation of US labour while domestic economic activity expanded at a moderate pace. If Wednesday’s minutes illustrate a similar stance, then Dollar bulls could be provided a lifeline to install a heavy round of buying.
From a technical standpoint, the Dollar Index is turning bearish on the daily timeframe as there have been lower lows and lower highs. Prices are trading below both the 20 and 50 SMA while the MACD has crossed to the downside. Previous support around 95.50 could transform into a resistance which could encourage a steep decline back towards 94.00.
Sterling on standby ahead of Employment data
Sterling bulls were installed with inspiration during trading on Tuesday following July’s positive CPI of 0.6% which reduced some concerns over the health of the UK economy. Although the CPI figure was the highest seen since November 2014, the eye-catcher was the shocking 6.5% rise in imports which was the most seen since 2011. Sterling vulnerability is becoming a recurrent theme with concerns potentially elevating in the coming months as the weaker currency feeds into higher import prices.
Investors may direct their attention towards the UK employment report which could offer some clarity on how the Brexit may have impacted UK employment. If the release displays a decline in employment and earnings post Brexit then the Sterling could be left vulnerable to further losses. Despite the rise in July’s CPI, sentiment still remains somewhat bearish towards the Sterling with further declines expected as speculations mount over the BoE cutting UK rates to near zero in 2016. With uncertainty still haunting investor attraction towards the pound, most upside gains could be capped.
The Sterling/Dollar surged ferociously towards 1.3050 on Tuesday and this has nothing to do with an improved sentiment towards the Sterling but Dollar weakness. This relief rally could entice bears to attack the pair with the divergence in monetary policy between the Fed and BoE sending the currency lower. From a technical standpoint, previous support at 1.3100 could act as a dynamic resistance that encourages sellers to send the GBPUSD lower towards 1.2900.
WTI breaks above $46
WTI Crude has surged sharply on with prices cutting above $46 as optimism grew over a potential production freeze deal in September’s unofficial OPEC meeting. Oil is becoming highly sensitive to production freeze expectations with talks of freezes producing sharp speculative boosts in oil prices. Although the current upside gains could be commended, the fundamentals of oversupply still linger in the background and this questions the sustainability of the current rally. Concerns over the excessive oversupply remain elevated while fears of a decline in demand continue to weigh on oil prices. Crude oil inventories data will be released on Wednesday and if such displays a further build up, then WTI could be open to steep losses. As long as the fundamentals of over oversupply and soft demand are presents, bears have a stable foundation to install repeated round of selling.
Gold searches for direction
Gold displayed erratic characteristics on Tuesday with prices violently vibrating between losses and gains as expectations continued to swing over the Fed raising US interest rates in 2016. The precious metal lurched to the highs $1357.90 on Tuesday before declining back lower following hawkish comments from New York Federal Reserve President William Dudley on the possibility of a September hike. Gold remains trapped in a fierce tug of war and Wednesday’s FOMC minutes could provide the metal some direction. Risk aversion has kept the metal buoyed but US rate hike expectations continue to pressure prices lower. From a technical standpoint, bulls need to keep above $1315 to maintain the daily bullish uptrend.