Sterling bulls were quite courageous on Thursday, after data from the UK showing the economy growing by 0.5% in the third quarter swiftly extinguished some lingering Brexit concerns. Although growth decelerated from the 0.7% in the second quarter, this still exceeded the 0.3% predictions and according to Phillip Hammond, proved that the fundamentals of the U.K were strong. A key talking point from today’s data release, was the sharp rise in services, which grew by 0.8% between July and September and attributed to higher than expected third quarter GDP.
Although financial heavyweights such as the ONS have stated that the pattern of growth continues to be unaffected following the EU referendum, it still remains too early to gauge the ramifications of Brexit to the UK economy. Considering that the Article 50 has not been invoked yet, investors may receive a real shocker as the genuine impact of Brexit may be experienced in the New Year.
On the currency side, sterling/dollar spiked to a one-week high around 1.2270 as bulls exploited the instance of positivity created by the GDP report to install rounds of buying. The sterling appreciation could be unsustainable in the medium term, with potential declines expected as hard Brexit concerns cap upside gains. From a technical standpoint, bears need to conquer 1.2200 to encourage a steeper selloff towards 1.2000.
WTI remains pressured
WTI bulls were installed with false inspiration on Wednesday, after a surprise drawdown in U.S crude inventories slightly eased some oversupply concerns. The short-term gains were almost erased after uncertainty over the success of November's pending OPEC meeting haunted investor attraction towards oil. It is becoming quite clear that the persistent oversupply fears and concerns that demand may be waning have gripped oil leaving prices vulnerable to losses.
Dollar resurgence amid rising US rate hike expectations has also provided sellers the extra ammunition needed to attack WTI incessantly. The commodity remains heavily pressured on the daily timeframe and a breakdown below $49.00 could trigger a steeper selloff towards $47.50.
Currency spotlight – EUR/USD
The EUR/USD remains vulnerable to losses in the medium term, as the expected divergence in monetary policy between the European Central Bank (ECB) and Federal Reserve (Fed) encourages bears to install heavy rounds of selling. Mario Draghi’s defensive stance over the ECB’s aggressive monetary policy has already reinforced expectations over the central bank bolstering its 1.7 trillion-euro bond purchase in the coming months while Fed-fund futures point to a 78.5% probability of a rate hike in December.
This bearish combination of euro weakness amid renewed stimulus hopes and dollar strength could send the EUR/USD towards 1.0800. From a technical standpoint, the current bounce could send the EUR/USD back towards the previous 1.1000 support which may transform into a dynamic resistance for another selloff towards 1.0800.
Commodity spotlight – Gold
Gold remains vulnerable to losses as the bearish combination of dollar strength and rising hopes of a US interest rate rise encourages sellers to attack. The potential hike in December may install bears with enough inspiration to send gold towards $1250 and lower this year. From a technical standpoint, gold is firmly bearish on the daily timeframe with sellers maintaining control below $1285. Prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below $1260 could spark a further selloff towards $1245.
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