The US economy has been a little lacklustre as of late, yet the stock market continues to climb higher and employment figures continue to improve. If you asked FOMC member Harker though you might be forgiven that it’s not all great in the US. Currently he believes there is little slack left in the US employment market and we are going to see the labour market tail off. This should come as no surprise given the market is currently recording record lows when it comes to unemployment. At the same time participation rates are also likely to taper off and I would expect that to be a major feature going forward for the market. The manufacturing sector that Trump pushed heavily has seen modest gains and Industrial Production m/m lifted to 0.3% (0.2% exp) which is an improvement on the previous months -0.7% which would have been affected by natural disasters across the U.S.A. For me with the world fixated elsewhere the US economy is trucking along, but equity markets might be slightly overcooked and the market is turning its attention to other areas over time.
For me one of the stand out areas to look is the metal markets, with gold being a strong contender for one to watch. The recent rise higher has faltered as the USD has started to strengthen and it’s very much looking like a weak bullish wave, and a sign that the bears are starting to return to the market. The bounce today of support at 1281 has done nothing to dampen the bears resolve and I would assume that they would look to have another go after closing the day out well below resistance at 1295. With the boilers coming of global risk and even the possibility of Brexit talks accelerating I believe we could potentially see further extension down to support at 1267 which would be a strong test of the bears in the market. If there is a break through here then 1238 might be on the cards but below this level might be a hard ask unless the global economy is looking quite strong.
The pound was also in the headlines today as Mark Carney poured some cold water on the potential for further rate hikes going into 2018. The market is now pricing in one rate hike due to inflationary pressure, but it could be sometime away until we see another if Brexit hampers the economy and the pound starts to stabilise.
For me it’s quite interesting for the GBPUSD as it starts to slip back down the chart again, and touched support at 1.3152. There is the potential for it to go lower, but the 100 day moving average and the trend line in play will make it hard work for traders to potentially move any lower than this. We could see a bounce here, but it’s likely the GBP could be stuck between strong levels as traders play off Brexit talk and USD strength.