Fawad Razaqzada

Market participants looking for fireworks were left disappointed when the UK government officially started the process of leaving the EU on Wednesday. The pound has weakened a tad against the US dollar, but strengthened versus the euro and is holding its own relatively well against the yen.

The recent improvement in UK data has seen many investors and analysts, ourselves included, ask a rhetorical question with a hint of sarcasm “Brexit, what Brexit?” Traders have apparently reduced their net short positions from record high levels as they realised the fallout in the immediate aftermath of Brexit was not as bad as many had feared. Granted, not all the economic pointers have been great but on the whole July has been a good month for the UK economy. However, we don’t want to jump into any conclusions as the economy works at a much slower pace than the markets. T

Oil prices swung wildly into the positive territory yesterday. The rally eventually came to a halt around the $50 handle for Brent and $48 for WTI, and both contracts have been trending lower from these levels until an hour or so ago. It looks like oil prices have now found some short-covering support ahead of today’s official US crude oil inventories report, due at 15:30 BST (10:30 ET).

Yesterday we looked at a long-term chart of the EUR/USD and highlighted the fact that the Fibre was testing a key resistance zone in the 1.1320-65 area (old support, underside of a broken bullish trend and 61.8% Fibonacci level).Today, we are looking at the technical outlook for the Dollar Index, which is a measure of the buck relative to a basket of foreign currencies.

The EUR/USD has arrived at a critical technical juncture ahead of this week’s key fundamental events, which include among other things the Eurozone PMIs (Tuesday), German Ifo (Thursday), US GDP and the Jackson Hole Symposium (Friday).

The GBP/USD ended higher last week on the back of surprisingly stronger-than-expected UK economic data and as the dollar eased along with expectations about an imminent rate hike in the US. But the Cable did sell off heavily on Friday, which took some shine off the week’s rally.

Economic data from the UK post the EU referendum has really surprised everyone this week, with inflation, jobs and now retail sales all topping expectations. It looks like Brits put Brexit miseries behind them last month as they enjoyed the relatively hot weather and splashed out on clothing and footwear, with the tourists also being encouraged by the weakness in sterling.

The official weekly crude oil inventories report from the US Energy Information Administration (EIA), released this afternoon, has confounded expectations in a positive way and oil prices have correspondingly surged to their best levels since early July. Meanwhile it is a game of wait-and-see as far the dollar is concerned and by extension buck-denominated gold, with traders largely sitting on their hands ahead of the release of the FOMC minutes later on today.

After the surprisingly strong UK inflation figures on Tuesday, the jobs and wages data released today confounded expectations once again, albeit to a lesser degree.

The UK inflation figures were stronger than anticipated, with headline CPI rising at a 0.6% rate rather than 0.5% that had been widely expected. The impact of Brexit was very clear as a significantly weaker pound caused the price of goods and raw materials purchased by manufacturers to soar.

Last week was another “risk-on” one for the markets, even though global economic data was poor. Disappointing data did however underline expectations of continued ultra-accommodative monetary policy from global central banks. This underlying theme remains valid at the start of this week.

Friday’s macro data from the world’s largest economies goes to show why the major central banks are still uber-dovish

The USD/JPY will soon either break down further or bounce sharply from around the technically-important 100-101 area

European stocks have started Tuesday’s session on the front foot after a lacklustre performance on Monday. Sentiment remains upbeat for global equities mainly because of the actions of central banks, rebounding oil prices and the mostly better-than-expected US corporate earnings results.

The rallying equity markets and firm US dollar is proving to be a toxic mix for the buck-denominated and perceived safe-haven gold. After eking out a small gain for the month of July, the metal started August on the front foot last week before turning decisively lower on Friday in response to the US jobs report, which came out much stronger than expected. The precious metal has started the new week a touch weaker today, but unfortunately things could turn ugly for gold in the days and weeks to come.

The second quarter earnings season has started brightly with the likes of Alcoa, JP Morgan and Citigroup all reporting numbers that were better than expected last week. The good run of form has continued at the start of the week as the Bank of America became the latest Wall Street giant to report forecast-beating numbers this morning, which caused its shares to climb some 4 per cent higher. This helped to keep the S&P 500 hover near its record high levels hit last week, though the markets have struggled to push further higher. It is a quiet day in the markets and ahead of the key earnings releases, not many people are willing to build aggressive positions and some are taking profit given the sharp rally over the past several days. The bears are largely on the side-lines, for now, as their recent efforts to push the indices lower continually failed.

The Turkish Lira slumped late in the day on Friday when news of what turned out to be an unsuccessful coup attempt in Turkey hit the wires. The lira was able to regain its poise at the open overnight, but volatility should remain high in the coming days nonetheless. Understandably, there is still a lot of uncertainty in Turkey and risks remain high we may see renewed capital flight from the country. In the medium-term, the Turkish economy and corporate earnings could suffer because of the likely negative effects the political situation and on-going terrorist threats pose on the tourism industry.

The Canadian dollar has endured a volatile day because of the slump in oil prices on the back of the latest US oil inventories report and a more hawkish Bank of Canada policy statement than expected. As we go to press, however, the Loonie is higher across the board, even though oil prices are significantly weaker on the day. For some CAD crosses, the volatility will remain high for the remainder of this week, due to the sheer amount of fundamental data or events scheduled over the coming days. Tonight, for example, will see the release of important Australian jobs data, while tomorrow is the Bank of England’s turn to deliver its rate decision and assessment on the UK economy following the Brexit vote. Thus the AUD/CAD and GBP/CAD could be among the key pairs to watch over the next 24 hours or so for trading opportunities.

With stocks, pound and yen dominating the headlines in recent weeks, traders haven’t paid as much attention to what still is the world’s most heavily-traded FX pair: the EUR/USD. Given that the respective meetings of the Bank of Canada and Bank of England are scheduled for later today and tomorrow, the EUR/USD may not garner much attention during this period either. But then the focus turns to key US data at the end of this week and next week there will be some important macro pointers from the Eurozone, too, as well as the policy meeting from the European Central Bank. So, the EUR/USD should come under spotlight fairly soon.

Safe haven gold has been falling out of favour since the start of this week. Investors have apparently been piling into equities, especially in the US where the S&P 500 climbed to a new all-time high on Monday and the index future points to a new record high open this afternoon.

So, the S&P 500 is rallying to fresh unchartered territories today. Where do we go from here? Well, the monthly chart suggests onwards and upwards.