The British pound displayed early signs of volatility during trading on Monday with prices popping above 1.2800 as anticipation mounted ahead of formal Brexit talks this afternoon. Brexit Secretary David Davis will be in the spotlight as he marches with a cavalry of nine-strong negotiators to Brussels calling for a “deal like no other deal in history”. Although much will be discussed in the talks ranging from the status of expats, the UK’s mammoth divorce bill, and Northern Ireland’s borders, investors may be more interested in the tone and stance of the European negotiators.
Today could offer a rare opportunity for participants to gain further insight into the overall aim of European negotiators and if they plan to play hardball.
With political instability in Westminster placing the UK in a vulnerable position and Conservatives in a weaker position following the election, the outcome of the Brexit talks may heavily depend on what Europe wants. Although the prospect of a soft Brexit has the ability to support Sterling, I feel the currency remains vulnerable to further downside amid the confusion and ongoing uncertainty that Brexit presents.
With Phillip Hammond sharing his concerns over the impact of having no deal, or even worse, a deal that drains the lifeblood of the UK economy, it will be interesting to see on what terms Britain will leave the European Union.
From a technical standpoint, the GBP/USD still remains under pressure on the daily charts. Repeated weakness below the pivotal 1.2775 should encourage bears to target 1.2600.
Dollar bulls seeking inspiration
The Greenback stabilized against a basket of currencies on Monday after tumbling on disappointing U.S. economic data last week. Price action currently suggests that dollar bullish investors may be in need of inspiration to support the currency as the effect of June’s hawkish surprise wears off. This is a week packed with comments by top Federal Reserve officials and participants may use this opportunity to seek for further clues on future rate hikes.
Although the central bank remains optimistic over the health of the U.S. economy, there seems to be a growing disconnect between what the markets think and what the Fed is signaling. If economic data from the States fails to stabilize and a period of economic softness proves more than just “transitory”, the dollar could find itself under renewed selling pressure.
Gold struggles below $1,260
Gold bulls were missing in action last week with bears making a guest appearance on Monday as the dollar stabilized. The Fed hawks still have a grip on the zero-yielding metal with the prospect of higher U.S. interest rates this year enforcing downside pressures. If the dollar continues to stabilize and Federal Reserve officials adopt a hawkish stance this week, gold could be instore for further punishment.
While the uncertainty surrounding Brexit negotiations and ongoing U.S. political instability is likely to support safe haven assets such as gold in the medium term, short term bears remain in control below $1,260. From a technical standpoint, the GBP/USD is pressured on the daily charts and support around $12,260 should transform into a dynamic resistance that opens a path towards $1,240.
Commodity spotlight – WTI oil
Oil prices were slightly pressured on Monday as the continued expansion in U.S. shale was seen as obstructing OPEC’s efforts to stabilize the saturated markets. A stabilizing U.S. dollar complimented the downside with sellers sending prices towards $44.50. The tale of OPEC vs U.S. shale is starting to feel like an ongoing battle of attrition with the champion taking the spoils. From a technical standpoint, WTI crude remains in the bears’ territory on the daily charts and a break below $44 should entice sellers to target $43.