BY Jameel Ahmad
The financial markets appear to have commenced trading for the new week under a mixed cloud, as both the constant headlines over the EU referendum outcome and the end of week slide in the price of oil weigh on investor sentiment.
It is also possible that the reason for a mixed start to weekly trading could be due to investors being pre-occupied with Round 2 of the Clinton vs Trump Presidential Debate taking place overnight, where the Mexican Peso has once again strengthened significantly as the expectations of Donald Trump eventually winning the US election continue to decline. The overall market reaction to Round 2 of the Presidential Debate is far less volatile to what we experienced at the end of Round 1, although this could be because the race to who could possibly win the US election was far closer at that time. Donald Trump appears to have now managed to alienate himself from his own political party, with the feeling in the air being that the comments released from a 2005 recording has gone some distance towards self-destructing his own presidential campaign.
Could the BoE attempt to stabilise the Pound this week?
Attention around the financial world is likely to remain on the British Pound over the week ahead, especially after the phenomenal “flash crash” that transpired on Friday morning. It would not personally surprise me if the Bank of England (BoE) released some further public commentary on the recent events with the British Pound following Chancellor Philip Hammond responding to the events that took place last week by expressing that market turbulence is to be expected. It has to be said that the UK Government will soon attempt to make the turning towards invoking Article 50 and begin to negotiate its exit from the European Union with its EU counterparts, therefore further depression in the Pound is to be expected.
The BoE find themselves in an unenviable positon because the British Pound is trading at levels not seen in a generation, despite the United Kingdom remaining one of the strongest performing economies across the developed world. While the chances of the BoE moving to stabilise the Pound through direct intervention are extremely slim at this stage, it is possible that the central bank will later indicate that the depressed Pound presents a risk to overshooting the 2% inflation target and this could then prevent further monetary easing from the central bank.
The GBPUSD is currently attempting to maintain itself at 1.24, but buying sentiment towards the currency is at such extremely weak levels that I can only expect further one-way traffic down the charts over the months to come.
WTI Oil unexpectedly back below $50
The value of WTI Oil has retraced back below $50 with technical traders taking advantage of the commodity failing to conclude trading last week above the psychological $51 level. While the oil markets were encouraged to bounce superbly higher following the shocking news that OPEC came to a preliminary agreement to cut production output during their recent “informal” meeting, we have maintained a view since April that WTI needs to successfully close above $51 before we can begin talking about the possibility of a further correction.
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Ahmad is the VP of market research at FXTM
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