European update – Markets, UK, Bitcoin, Gold, Oil

Markets flat as we await more earnings

It’s been a pretty flat start to trading on Wednesday as we continue to make our way through the early stages of earnings season.

Source – Thomson Reuters Eikon

It feels like we’re entering into holiday mode now, with markets positioned for multiple rate cuts this year and the Fed not yet making any real effort to lower expectations. Any strong data from the US is doing little to dramatically shift expectations, with retail sales yesterday easily topping forecasts but traders remaining convinced that we’ll probably see three cuts.

Earnings season has got off to an okay start but concerns that existed prior to the few releases we’ve had still very much exist. Expectations for the second quarter remain pretty weak, with another period of negative earnings growth expected which only helps the cause for rate cuts this year. Nothing we’ve seen so far suggests we’re heading for a surprisingly positive season, which makes the outlooks all the more important.

Sterling struggling to cope with Brexit fears

The pound came under significant pressure on Tuesday, despite the UK jobs report showing a solid labour market with strong wage growth. This morning’s CPI inflation data was in line with expectations and suggests there’s little pressure on the BoE on that side to consider cutting interest rates. Still, traders view a cut at the end of the year as a coin toss leaving little doubt that the threat of no-deal Brexit is what’s driving the currency right now. Interestingly, reports that Boris Johnson would consider an election in 2020 is not adding to the pressure given that some view a Corbyn government as an even greater threat than Brexit.

GBPUSD Daily Chart

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Bitcoin hanging on in there

Bitcoin is back below $10,000 but it’s not quite spiralling out of control just yet, clinging on in the $9,000-$10,000 region. The latest dip came after Libra was discussed and questioned by Senators in Washington and let’s just say there wasn’t much of a positive vibe. Safe to say there’s a lot of scepticism around Libra and other cryptocurrencies and there’s still a long way to go until those in charge are satisfied and get fully on board, if they ever do. Given the reaction we’ve seen over the last week or so from US officials, it’s no surprise there’s been some nervousness in the space and that may continue as these attacks, particularly from the President, don’t tend to be temporary.

Gold under pressure as retail sales lift the dollar

Gold prices slipped a little on Tuesday, following the release of the US retail sales report which comfortably exceeded expectations to lift the dollar. The yellow metal is trading back around $1,400 now and remains in consolidation mode. A break below $1,380 may change this but we’re still a little away from that yet and given the current environment, gold bulls may put up quite a fight around that level.

Gold Daily Chart

Oil pares losses after slipping on Trump Iran comments

Oil prices dipped on Tuesday after Trump and Pompeo struck a softer tone towards negotiations with Iran in what could be an important first step towards the nuclear deal being saved. There’s still a very long way to go, with both sides making demands of the other which have until this point been rejected but it’s a start. Today we’ll get inventory data from EIA which is expected to be broadly in line with API, who reported a small drawdown last week.

Brent Daily Chart

Economic Calendar

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.