US futures are set to close out a rather dull weak on a positive note
UK’s GDP data failed to meet expectations yesterday
The ECB has things under control
European markets are choppy today. US futures are set to close out a rather dull weak on a positive note on Friday. Investors are still finding it difficult to make up their mind as the message from the Fed towards their monetary policy normalisation has any acute angle. Nonetheless, the dollar index has found a lot of love amidst speculators that the Fed could be aggressive this year.
Despite all this, the dollar index is still struggling to break above the 91 mark as the recent profit-taking started at a level of 90.17. However, the bargain hunters or shall we say speculators, have stepped back in fairly quickly as the price dropped to 89.64.
Although the UK’s GDP data failed to meet expectations yesterday, a weaker dollar and a confident Mark Carney was enough to push GBP/USD past 1.395. The hawkish policy tilt has started to overshadow the drag from Brexit worries. Traders are open to the idea that there could be more strength ahead for the pair as they continue to price in the possibility of another rate hike by the Bank of England next month. The evidence that the BOE could be raising the interest rate next month is evident in the market implied volatility which has jumped to 83 percent. The number stood at 51 percent during the last month.
There were some brief spikes when the European Central bank published its minutes yesterday but overall the ECB had things under control. This statement looks relatively much stronger when we compare the market reaction to a similar event during the last month. The ECB has learned that it has to write its minutes very carefully otherwise the currency could explode in either direction. The ECB communicated that the governing council is fully committed to remove the expansion of the bond-buying program and any change in language is very much dependent on the inflation outlook. Given that there is no clear timeframe when the ECB will fully shut the shop of cheap money, investors are hesitant before entering longs with this pair.
Gold
The third weekly decline for the precious metal is on the cards as investors pay attention to speculators who are fuelling the dollar rally on the basis that the Fed could increase the interest rate four times this year. However, we think that this pullback could be an opportunity for the bulls to jump on the trade as this could be a buying opportunity.
Oil
The US is pumping out a record amount of oil and investors angst that these record amount would swell stockpiles. The bull rally which we have seen for the black gold could fade away as the US oil production undermines the OPEC production cut commitments.
