It’s remarkable that today marks exactly one year since Britain voted to leave the European Union, yet Sterling still remains at depressed levels with the currency struggling to nurse the deep Brexit wounds. Although there was some optimism in the latter half of 2016 when economic data unexpectedly displayed resilience against Brexit, the visible signs of slowing growth in the first quarter of 2017 were a massive wakeup call. Since then, the Pound has found itself pressured from all directions as the ongoing Brexit developments, political instability in Westminster and influx of depressing economic data weigh heavily on the currency.
As we move deeper into the year, the horrible combination of rising inflation and tepid growth are likely to place the Bank of England in a complicated position. The interest rate tug of war between Bank of England policymakers has already started with expectations constantly fluctuating over when, or if, rates will be hiked. Although leaving interest rates unchanged seems like a safe bet amid the uncertainty, there is a risk of inflation rising uncontrollably which may aggravate the fall in real wages while punishing savers. On the other hand, raising US interest rates could negatively impact growth, dent business confidence and hit consumers even further. It will be interesting to see how the Bank of England solves this complicated jigsaw and while the end result remains uncertain, there is some certainty that Sterling will be impacted.
Brexit negotiations and UK politics will also heavily impact Sterling this year which can already be seen in the currency’s price action. The growing uncertainty at home and abroad should leave the Pound highly vulnerable to losses with bears exploiting the technical bounce to drive prices lower.
From a technical standpoint, the GBPUSD currently trades within a bearish channel on the daily charts. Previous support around 1.2775 could transform into a dynamic resistance that opens a path lower towards 1.2600.
Gold glitters once again
Gold bulls received inspiration this week in the form of plunging oil prices which weighed on global sentiment and soured risk appetite. A weakening Dollar coupled with mixed messages from policymakers on US rate hike timings supported the metal further as prices lurched towards $1258 during Friday’s trading session. With the zero-yielding metal notoriously known for being dictated by US rate hike expectations, there is a possibility of gold venturing higher if speculations of the Federal Reserve taking action this year decline. Due to Brexit developments, political risk in Washington and oil’s oversupply woes stimulating risk aversion, safe-haven assets are likely to remain supported moving forward. From a technical standpoint, Gold is currently trading within a bullish channel on the daily charts and there is a visible reluctance to break below $1240. A decisive breakout and daily close above $1260 could bring bulls back into the game.
WTI Crude limps into Friday
WTI Crude edged higher during Friday’s trading session on the back of profit-taking, but sentiment remained heavily bearish amid the oversupply concerns. With oil prices officially in a “bear market,” investors will be paying close attention to how OPEC responds and if further cuts are put in place to reduce the global glut. The bias towards the commodity remains tilted to the downside with price action displaying doubts over OPEC’s ability to trim global inventories to their five-year average in 2018. I believe this may be a critical period for oil especially when considering how prolonged periods of low prices and US Shale resurgence could cause OPEC’s output-cut deal to collapse. From a technical standpoint, WTI Crude is under intense selling pressure on the daily charts. A technical bounce may be on the cards before prices trade back towards $42.