Market Insights

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GBPUSD plummets to fresh 8 month low

The bearish sentiment towards the Sterling/Dollar descended to new depths on Thursday after the currency pair closed below 1.49 for the first time since April and fell to a fresh eight-month low at 1.486.

While part of the reason for this heavy decline in the GBPUSD has been due to the resumption in USD strength throughout the global currency markets, sentiment towards the Sterling has also been eroded by the Bank of England (BoE) Deputy Governor Nemat Shafik disinclination towards a UK rate hike until wage growth has recovered in the UK economy.

With UK inflation rising at a tepid pace, the recurrent fears that the Bank of England may push back raising rates deep into 2016 has reduced investor attraction towards the pound. The Sterling remains vulnerable and this should encourage sellers to attack the GBPUSD with targets pointing towards the lows of April 2015 at 1.456.

From a technical standpoint, this pair is heavily bearish on the daily timeframe. Prices are trading.

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Following the tragic events in France on Friday evening and after losses were noticed throughout the Asian markets overnight, expectations are high that the global markets are going to remain under pressure as trading for the week gets under way. The tragic events in France are likely to weigh on investor sentiment and will probably encourage some risk aversion from investors. Investor sentiment towards global markets was already looking shaky as last week concluded, and the recent events are going to weigh further on this.

Other reasons to expect a weak open to trading for the week includes the price of WTI Oil falling to a fresh two-month low at the conclusion of last week, alongside confirmation in the early hours of Monday morning that the Japanese economy has fallen into another recession. Due to the increased appetite for safe-havens from investors following the tragedy in Paris on Friday evening and the expectations that lower commodity prices will also pressure.

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Global Markets

Euro bears were provided with inspiration following Mario Draghi’s dovish rhetoric on the Eurozone economy during his conference in Brussels, which sent the EURUSD back below 1.07 at 1.0690.  His repeated dialogue about the ECB implementing additional stimulus measures to the Eurozone economy if needed was once again approved by the Euro bears.

Investors digested Draghi’s comments about the central bank being willing to act if medium-term price stability was at risk as an indication that the ECB are going to provide further monetary easing.  With expectations mounting that the European Central Bank is close to taking action in the near future, the EURUSD has printed new daily lows slightly below 1.07.

Moving forward the Euro looks set to remain depressed as investors pile on bets that the ECB could implement further QE before the end of the year.The reoccurring concerns over the current supply glut of Oil.

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GBPJPY


The GBPJPY experienced a bullish trading session on Wednesday with prices trading over 100 pips to the upside. The pair is technically bullish on the daily timeframe as higher highs and higher lows have been consistently created. Prices have found some support above the daily 20 SMA and the MACD has also crossed to the upside, all in line with the bullish view on the GBPJPY. The current bullish channel may provide Pound bulls the foundation to breach the 187.50 resistance. A solid breakout above the 187.50 resistance may further motivate traders to begin pricing an eventual incline to the 191.00 level.

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Markets are set to wake up to concerns over a slowing China economy for the third successive day following annualised Industrial Production data slipping below expectations a few hours ago. This economic release adds to the underlying anxiety around economic momentum consistently declining in China, and compliments the below expectations inflation release on Tuesday morning, as well as the incredibly weak trade data that was released over the weekend.

Imports dropped by an astonishing nearly 19%, which goes some distance towards explaining why those economies which have become so reliant on exports to the major economy are set to notice weak demand from China. The trade data also provided one of the major reasons why the Organisation for Economic Co-operation and Development (OECD) downgraded economic growth forecasts at the beginning of the week.

Although China GDP has slipped below the government target and all indications currently point towards economic momentum.

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Global Markets

The diminishing expectations that global demand for oil would pick up in the near term, resulted in a hefty decline in WTI which lasted for three consecutive days last week. Some recent soft data from China illustrating a considerable decline in exports and imports in October has renewed fears about China growth, and this will continue to threaten WTI bulls. WTI remains technically bearish and prices may remain depressed as oversupply and diminishing demand sabotage any opportunity for bulls to bounce back. Currently, WTI bears antagonize the $44.00 support and if this level submits to the pressures, then there may be a clear path to the $42.00 level.

A slew of soft economic data from Europe in November has exposed the Eurozone to downwards pressures. The European Central Bank has been in a constant bout to achieve its 2% inflation target against falling commodity prices and China’s economic deceleration. Friday’s.

Yen Losses Ground as Risk on Rally Takes Hold

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The USD/JPY strengthened as China and other stock markets rallied. The yen has re-established its historical inverse correlation with equity markets recently and as the safe haven play when chaos hits the capital markets.

The USD/JPY currency pair made a two-day high at 122.03, bringing the 50-day moving average at 122.34 into view. EUR/JPY sprang to a four-day peak of 133.81. Stocks markets in China rallied strongly for a second day, with the Shanghai Comp gaining nearly 4.5%, adding to Thursday’s near 6% advance as yet further stabilization measures were implemented. Japan’s Nikkei was showing a moderate loss, weighed by Fast Retailing, which accounts for about 10% of the index, following an earnings report.

In economic news Japanese producer prices dropped 2.4% month over month in June compared to a decline of 2.2% in May.  The focus on the currency markets falls squarely on issues related to both Greece and China which left little interest in Japanese market fundamentals.

The currency pair tested the 10-day moving average at 123, but was unable to break this line in the sand.  Support is seen down near Wednesday’s lows at 121.  Momentum has turned positive with the MACD (moving average convergence divergence) index generating a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crossing above the 9-day moving average of the spread.  The index moved from negative to positive territory confirming the buy signal.