Market players have entered Wednesday’s trading session with an intent to maintain some distance from riskier assets ahead of trade talks between US and Chinese officials later in the day.
Asian stocks closed mostly mixed while European markets dipped as investors evaluated the latest US political developments revolving around president Donald Trump. A fresh layer of uncertainty was created over Trump’s legal woes following reports of the president’s former lawyer Michael Cohen pleading guilty to Federal charges. Wall Street could edge lower this afternoon as uncertainty and caution ahead of the FOMC minutes continue to weigh on risk sentiment.
There seems to be a sense of optimism over the pending US-China trade negotiations easing trade tensions, despite Trump stating earlier in the week that he did not expect much progress. While the possibility of a breakthrough deal from the lower level trade talks remains very low, any signs of further negotiations in the future could support global sentiment.
Dollar waits for FOMC minutes
Buying sentiment towards the Dollar took a hit during the first half of the week after Trump stepped up his criticism of the Federal Reserve.
The depreciation felt slightly overexaggerated, especially when considering that this was not the first time Trump has attacked the Federal Reserve. While his attempt to verbally intervene may pressure the Dollar in the short term, the medium to longer term outlook remains tilted to the upside. With the fundamental drivers behind the Dollar appreciation firmly intact and expectations elevated over higher US interest rates this year, the Dollar remains king.
Much attention will be directed towards the FOMC minutes from the latest Fed meeting this evening which could reinforce market expectations of a Fed rate hike in September.
In regards to the technical picture, the Dollar Index could be experiencing a technical correction on the daily charts. The breakdown below 95.50 could encourage a decline back towards 95.00. If bears are able to push prices below the 95.00 support level, the next key level of interest may be found around 94.70.
GBPUSD challenges 1.2900
The British Pound reacted positively to reports of Britain holding continuous negotiations with the European Union in a fighting bid to secure a breakthrough in Brexit talks.
A depreciating Dollar has also offered Sterling bulls some support with the GBPUSD punching above 1.2900. While this new-found sense of optimism over Brexit talks could continue supporting the Pound, the question is for how long? With just over seven months left before Britain is scheduled to officially leave the European Union, the clock is ticking. Sterling is likely to be attacked from all directions if fears heighten over the UK crashing out of the EU with no trade deal in place.
Regarding the technical perspective, the GBPUSD has staged a remarkable rebound on the daily charts thanks to a softening US Dollar. A technical breakout above 1.2900 could inspire an incline towards 1.3030. However, sustained weakness below the 1.2900 level may result in prices trading back towards 1.2820 and 1.2770, respectively.
Commodity spotlight – Gold
Gold bulls were offered ample support in the form of Dollar weakness this week.
Although prices have staged a solid rebound from the $1160 yearly low, the outlook remains tilted to the downside. With the Dollar poised to recover on heightened US rate hike expectations and safehaven demand, Gold remains vulnerable to downside losses.
Repeated Dollar weakness could push Gold prices towards the $1200 psychological level. A solid break above this level could invite an appreciation towards $1216 and $1230, respectively. However, if $1200 proves as a stubborn resistance then prices could sink back to $1180.
