USD caves into pressure

Global Markets

Global equity markets are continuing their recent upturn in form from late last week with gains in European markets continuing as we approach the mid-way point of this week’s trading. The significant rally in the oil markets over the previous 24 hours would have also improved sentiment, specifically with the FTSE 100 which has a strong correlation to mining stocks. It is also possible that sentiment towards the equity markets has been provided a boost by the increasing speculation that the People’s Bank of China (PBoC) is going to unleash further monetary stimulus to reinvigorate consistently declining economic momentum in China, once the China markets reopen for trading following the national holiday.

While the above might be contributing towards an improved market sentiment, there are still lingering anxieties at the forefront of investor’s minds and I do not think that this recent upturn in gains can last forever. The same global economic woes that encouraged severe losses to the equity markets during the final quarter are still remaining in the atmosphere, which is exactly why there are risks out that there that investors need to still monitor.

Some of the threats to investor sentiment include complete confusion over the eventual timing of a US interest rate rise, anxieties over China entering an even deeper than previously expected economic downturn, minimal growth in both Europe and Japan. Not only this, but commodity prices are still depressed despite the unexpected rally in the oil markets over the previous 24 hours.

Commodities

Speaking of the oil markets, WTI has rallied strongly to over a one-month high just below $50 on the unexpected news from a United States' government report that the oversupply in the markets might have reached a peak. This has provided a welcome boost in investment sentiment, and will greatly help those currencies with economies strongly linked to commodity exports. This means that we can expect a stronger Ringgit, Rupiah, Ruble and Canadian Dollar, along with both a healthier Australian and New Zealand Dollar. Gold has benefitted strongly from the pushed back US interest rate expectations following an unexpectedly poor NFP in September, with the metal managing to jump nearly $50 in the past three trading days towards $1150. There is little doubt that the weak NFP from the United States has pushed back interest rate expectations and as the markets continue to price this outcome into the USD, Gold will continue to benefit. The chances of a US interest rate rise this year are narrowing each passing week, which is encouragement if you are a Gold investor.

GBPUSD bounces away from 1.51 – again!

Further encouragement has been provided to GBPUSD investors that the 1.51 area is a probable “bottom” for the pair, after the GBPUSD managed to strongly bounce away from this level once again early this week. The GBPUSD has now jumped by nearly 200 pips to 1.53 from this lower range, and concerns that the UK economy is suffering a decline in momentum following the disappointing Services PMI at the beginning of the week would have been weakened by an improved Industrial Production release just moments ago.