Markets looking positive, but USD suffers

Global Markets

The global markets are continuing their recent upturn in form to trade higher with gains seen late last week continuing into the beginning of the new trading week. There does seem to be an improved sentiment when it comes to the global markets as we enter the final quarter of the year, which is a substantial contrast when you take into account the excessive downside pressures which they were facing at the end of the previous quarter.

I do however remain unconvinced that this is the beginning of a run of positive form when it comes to the global markets and there are still risks to investor sentiment out there. I believe that sentiment in the global economy took another hit on Friday afternoon when indications that growth in the US jobs market has peaked was exposed, mainly because previouslyit was the US economy that was solely carrying the torch for the global economy.

If signs continue to alert investors that the US economy might also be slowing down, this should heavily weigh on investor sentiment. There are already too many anxieties for investors right now with this including confusion over the complete lack of timing of a US interest rate rise, fears over China, growth concerns in both Europe and China alongside depressed commodity prices. If fears then emerge over the US economy, this would represent a high risk to the equity markets.

Commodities

Gold has managed to jump nearly $40 on the USD weakness following the largely disappointing US jobs’ report. There is little doubt that the weak NFP will push back US interest rate expectations and as this occurs Gold will benefit from an improved sentiment. I still don’t think it has been priced into the USD yet that the chances of a US interest rate rise this year are weakening, which is encouragingif you are a Gold investor.

Despite concerns over the global economy remaining as a recurring theme, WTI Oil is attempting to build up some positive momentum. The commodity has now gained close to $2 over the past two days totrade towards $46 but while some might see this as positive encouragement for further gains, it is important to point out that the $44 area has installed itself as stubborn support for the commodity.

I maintain the same viewpoint that there is still an elevated risk of WTI Oil hitting one further milestone low before the end of the year. Although it is the regularly repeated signs of an aggressive oversupply in the markets that has acted as the dominant threat to investor sentiment for the past year, the elevated anxieties over the pace of the global economy does increase the possibility that there will be less demand for the commodity moving forward. In my view, reduced demand for oil is the next catalyst for a heavy sell-off when it comes to the commodity markets.

GBPUSD

The USD weakness is providing further encouragement to GBPUSD investors that the pair found a probable “bottom” around the 1.51 area seen last week. Further USD weakness would provide inspiration for the GBPUSD to continue trading higher, but it is important to make aware that another risk-off trading attitude from investors could result in the GBPUSD suffering another sudden shift in momentum.

EURUSD

As you would expect with a broadly weaker USD, this is promoting a bounce in the EURUSD. The Eurodollar has moved to trade as high as 1.13 on the back of USD weakness, but there is still further upside potential for the pair if US interest rate expectations continue to be pushed back into next year. While the EU economic sentiment remains bleak and definitely took another blow when it was confirmed that inflation has returned back to negative, a weaker USD will naturally mean a stronger Eurodollar.