China data adds to ongoing concerns

The GBPUSD suffered a heavy fall and hit a weekly low narrowly above 1.52 after the latest round of UK inflation data confirmed to traders that persistent inflation weakness will continue to delay any possibility of a UK interest rate rise. The disappointing return to deflation territory will threaten investor appetite towards the Pound for some time and will strongly weaken any possibility of the currency continuing to gain against the Dollar.

While the UK economy might remain desirable from an investor’s point of view due to the robustness of its economy, recent data is suggesting that even the UK is suffering from its own decline in economic momentum and the return to deflation will further weigh on investor sentiment because this ultimately pushes back any UK interest rate expectations. Rather than advancing higher or attempting to recover momentum against the Dollar, it looks far more likely that the GBPUSD will continue drifting towards 1.51 with this being the level where traders found confidence throughout previous weeks that this might be a “bottom” for the pair.

China trade data weighs on market sentiment
The resumption of concerns over economic momentum continually declining in China encouraged equity markets to drift lower on Tuesday. Although the China trade data surprised some with exports falling less than expected, the general consensus is that such an astonishing drop in imports at 20% provided further confirmation that demand from China for exports from other nations is already tumbling.

The greatest concerns over the China economy slowing down are not limited to the domestic economy itself, but for those economies that are so reliant on exporting products to China. These are the economies that are going to suffer the fall-out from a decline in China trade, and this is exactly why weak economic data from China can weigh on investor sentiment elsewhere.

EURUSD hits monthly high
The ongoing USD weakness and continually pushed back US interest rate expectations have correlated in the EURUSD reaching 1.14 for the first time in October. The appreciation of the Euro has absolutely nothing to do with improved sentiment in Europe but instead, the currency has jumped heavily as a result of the USD weakness. This does represent a nightmare scenario for the European Central Bank (ECB) and will lead to increased threats of further monetary stimulus, in the hope of preventing traders from becoming tempted to purchase the Euro.

WTI pulls back further
After concluding trading for last week around a near three-month high, WTI has suffered aggressive profit-taking and lost around $4 to trade at $46.59. Any rally in the oil markets can fall over like a house of cards at any given time and the fundamentals which the oil markets face remain aggressively against the commodity. The price of WTI is likely to remain depressed for some time yet and I personally do not think that elevated concerns over the global economy have yet been priced into the commodity.