After Reaching Multi-Week Lows, the Greenback Recovers
The GBP/USD currency pair is currently trading at 1.307, down 0.69% or $0.0091. Over the past 5 trading days the GBP strengthened from 1.2903 to its current level of 1.3075. However, the greenback recovered since Thursday, 18 August when it was trading at 1.3161 and subsequently pulled back to its current level. In much the same fashion, the USD/JPY currency pair is up 0.2072% at 100.1300. The pair had an interesting week in that the dollar depreciated from 101.2580 on Monday, August 15 to a low of 99.6620 by Tuesday, 16 August. However, the greenback gradually gained ground and gained ground to trade at the current level of 100.2100.
The USD reached 7-week low against the EUR and the JPY earlier in the week, and weakness in equity markets was prevalent across the board. Oil markets were struggling as the multi-session rally lost momentum and this led to diminished sentiment in equity markets. For the GBP, concerns abound that Prime Minister May will invoke Article 50 of the Lisbon Treaty by April 2017. The GBP depreciated on the back of this news. Likewise, emerging market currencies such as the Turkish lira, South African rand and Brazilian real reversed direction and started trading lower. There have been significant capital inflows into EM countries of late.
It is interesting to see how the USD has performed against other currencies in July and August, given the overall trend of dollar weakness. Unease about the future direction of the Fed remains a concern for markets. A rate hike in September would have a negative effect on EM currencies, equities markets and the fragile economic balance. Just recently, New York Fed President, William Dudley made a series of hawkish comments about a potential rate hike as early as September 2016. However, Fed FOMC minutes were non-specific about the timing or scope of the next possible rate hike.
1 – Trading the USD to the Upside
The EUR/USD is currently trading at 1.1327, down 0.23% or $0.0026. The greenback traded in a tight range against the EUR at 1.131 – 1.136 on Friday, 18 August. Earlier in the week, dovish comments by the Fed and the Federal Open Market Committee (FOMC) had a negative effect on the greenback. However, a reversal took place and this is somewhat bearish for the EUR/USD pair. There is trendline resistance which is likely to drag the pair lower. The dollar had been depreciating for the better part of 4 weeks, but the reversal towards the end of the week dragged the EUR/USD pair lower, as evidenced by the downturn on the above chart.
That New York Fed President was hawkish about the prospects of rate hikes as early as September, was good for the greenback. The picture is somewhat confusing given that US inflation data was recently reported at a 7-month low, but GDP growth is stable. The US labor market appears to be performing above expectations. The impact of the muddled economic data ended up being positive for the greenback. For example, by Friday the EUR had depreciated by 0.2% and was trading at $1.1326, but for the overall week the EUR/USD pair gained 1.5%. In much the same way, the DXY endured a 5-day decline of 1.3%, but a Friday appreciation of 0.3%.
2 -The FTSE 100 Index Regains Momentum
The FTSE 100 index remains a star performer in the second half of 2016. The year-to-date return of the index is 9.88%, and the 1-year return is 15.40%. The 52-week trading range is 5,499.51 on the low end and 6,955.34 on the high end. At the close of trade on Friday, the 101-member index had 60 members down and 36 members up. The best performers included Lloyds Banking Group plc (+2.54%), easyJet plc (+2.50%) and WM Morrison Supermarkets plc (+1.46%). The index rallies when GBP weakness is evident. The GBP/USD currency pair is a good barometer of the FTSE 100 index which features foreign-based revenues. As the GBP depreciates, so the FTSE 100 index tends to move in the opposite direction. The currency pair is trading at 1.307, down 0.69% or $0.0091. The FTSE 100 index is at 6,858.95, after rallying in the late session.
3 – Twitter Stock Takes a Dive (NYSE: TWTR)
Twitter Inc (NYSE: TWTR) is currently trading at $18.98 per share, down 0.11% or $0.02. In after-hours trading the stock was up $0.04 at $19.02, +0.21%. The stock has a current market capitalization of $13.29 billion and a price/earnings ratio of -31.53. The 1-year target estimate price is 16.79, and the 52-week trading range is $13.73 on the low end and $31.87 on the high end. After rallying for several weeks after the quarterly earnings release, Twitter stock is down 2.96% for the week ending Friday, August 19.
The stock started on Monday, 15 August at $19.75 per share and peaked at $21.08 per share by the afternoon session. Since Monday however, the stock has been on the decline and dropped below the key $19 support level. Twitter was hit by a barrage of short selling positions on the stock after an analyst at Evercore ISI stated that Snapchat is already doing what Twitter hopes to be doing. He was referring to broadcasting and other technological innovations. Evercore ISI currently has sell ratings on just 29 of the 665 companies it evaluates. And according to Sena, ‘… We see more risk than reward…’
4 – Where to Next for Gold? RBC Capital Markets Goes Bullish
Gold continues to hover around the $1,350 per ounce level. The precious metal was down 0.81% on the day, or $11. The spot gold price is currently $1,341.47 per ounce, down $10.89 or 0.81%. RBC Capital Markets gave a glowing endorsement of gold as their futures guidance for the metal was increased to $1500 for 2017 & 2018. The prior forecast was $1,300 per ounce for the same period. Among the many reasons cited for the improved prospects for gold were geopolitical risks vis-a-vis the Brexit and the negative implications on the economy with government bonds. RBC Capital Markets adopted a positive approach to gold as part of an investment portfolio.
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