The pound is continuing its recovery phase as the new trading week continues, extending gains from last week following economic data indicating that the EU referendum outcome might not have negatively impacted the UK economy in the way that was previously feared.
The GBP/'USD has reached slightly above 1.32 today with this representing its highest level since early August and some distance away from its low found earlier in the month around 1.28, supporting the argument that investors were enticed towards purchasing the Pound following the economic data from last week easing fears about an immediate downturn for the UK economy.
I still personally think that it is way too early to begin jumping to conclusions that the recent economic releases will set a trend of belief that the UK economy might not be as negatively impacted by the EU referendum outcome as what was initially feared.
This whole withdrawal process from the EU, whether it truly happens or not is supposed to take at least 2 years and this means that there are longer-term potential risks to the UK economy that investors will be watching.
Investment from overseas, a likely increase in price pressures, whether it leads to a decrease in vacancies from UK businesses and potential impact across leading indicators such as PMIs are just a few variables that the markets will be watching very closely.
Can the GBP/USD continue its rally? The previous investor mind-set for months has been to sell the rally and I don’t personally think this has changed. Potential buyers could be monitoring to see if the GBP/USD closes above 1.32 today, which could on a technical basis set the blueprint for another extension higher.
With that in mind we have seen often in the past that the momentum in the GBP/USD can change very suddenly and that when the selling pressure enters the atmosphere, the pound declines very fast across the charts.
WTI oil reverses gains
WTI oil is quickly retreating recent gains and extending selling pressure into Tuesday, with the commodity dropping from its six-week high above $49 to below $47 during trading today.
From a technical standpoint, we have been waiting for a weekly close above $51 for months that would have represented a technical trigger in my eyes for a potential further recovery, and the failure to achieve this at the end of last week might be why selling pressure has resumed during trading this week.
Another possible reason for the declines from a less technical view is because the recent return to a “bull run” was encouraged by speculation that OPEC might make a change to production output during a reported “informal meeting” to take place next month.
Firstly, I don’t think anyone understands what a so-called “informal” meeting really means! Secondly, we have heard this ongoing story regarding a possible change to production output so many times before and it has so far led to nothing material on a variety of different occasions.
It is going to be far easier to bring the words ‘production cut’ to the table than it is going to be to make it a reality across OPEC committee members. what we are probably going to begin hearing once again is public comments that “any possible change to production levels is going to require support and similar actions from both OPEC committee members, and Non-OPEC members”.
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