Financial markets offered a fairly muted response towards North Korea’s latest ballistic missile launch over Japan during Friday’s trading session, with stocks in Asia concluding on a mixed note and investors strolling towards the sidelines. This cautious tone from Asia has already pressured European equities, with Wall Street potentially coming under pressure this afternoon if geopolitical tensions encourage market players to avoid riskier assets.
Sterling bulls are back in town
Sterling has stolen the spotlight in the foreign exchange arena today. It rose to its highest level since the results of the Brexit vote, following hawkish comments from BoE policymaker Gertjan Vlieghe. Vlieghe, a notorious dove, has backed the central bank’s hawkish rhetoric, ultimately reinforcing expectations of a UK interest rate hike before the end of 2017. With the markets now pricing in a very high possibility of a rate hike before year-end, sterling is likely to regain its attitude and remain supported moving forward.
Sterling/Dollar is undeniably bullish on the daily charts, and this upside momentum is likely to roll over into the new trading week. A weekly close above the 1.3400 region should offer enough encouragement for bulls to target 1.3700.
Dollar lower ahead of retail sales
The dollar extended declines against a basket of major currencies on Friday, despite consumer price inflation for August exceeding market expectations by rising 0.4%.
It is becoming increasingly clear that the growing disappointment over Trump’s failure to enact tax reforms and move forward with the proposed fiscal spending has damaged buying sentiment towards the greenback. With concerns over low inflation in the United States still clouding the prospects of higher interest rates and adding to the dollar’s woes, further downside is on the cards. Investors will direct their attention towards the pending Retail Sales Report, which could offer investors a rough idea on consumption and GDP in the U.S. economy.
Dollar bulls are in desperate need of inspiration, and this may come in the form of a positive retail sales figure. In an alternative scenario, the greenback may be in store for further punishment, if the economic report fails to meet market expectations. From a technical standpoint, the Dollar Index still remains bearish on the daily charts. A breakdown below 91.50 should encourage a further depreciation towards 91.00 and 90.00, respectively.
Commodity spotlight – Gold
Gold has been a battleground for bulls and bears this week, and this is reflected in the metal’s chaotic price action. Bulls found support in the form of geopolitical tensions, dollar weakness and fading rate hike expectations, which kept prices above $1315. Sellers were inspired by reports of Republicans releasing their tax reform framework later this month, which boosted the dollar. Thursday’s positive U.S. CPI report compounded the initial downside, as expectations over higher U.S. rates increased.
This tough tug of war is reaching a climax, and the victor is likely to be determined by where prices conclude this week. A weekly close below $1315, signals the end of the bullish trend on the daily charts, with the next target being $1300. In an alternative scenario, a weekly close above $1340 should open the gates towards $1350 and higher.