Morning market check: Sterling, dollar, gold

It’s quite interesting how Sterling remains resilient despite being constantly bombarded by political risk and economic woes over the past year. Last week’s awe-inspiring rebound, which was trigged by Bank of England Governor Mark Carney’s hawkish remarks, is a testament to this, as the Britsh pound/U.S. dollar (GBP/USD) currency pair concluded Q2 above 1.3000.

While the Pound could find itself supported in the short-term as speculation heightens over a potential UK interest rate increase, gains are likely to remain limited as investors slowly come to grips with the reality of Brexit. With the UK economic outlook uncertain and political risk weighing on sentiment, an interest rate increase which may put pressure on growth and business confidence could easily add to the UK’s woes.

Focusing on the macro-fundamentals, Sterling found itself vulnerable to losses during Monday’s trading session after weaker-than-expected data from Britain’s manufacturing sector forced investors to re-evaluate the possibility of an interest rate increase in 2017. The UK’s manufacturing sector activity reading fell to 54.3 in June, marking its slowest pace of growth in three months. This disappointing report has dealt another blow to sentiment and is likely to add to the horrible cocktail of soft economic releases which is slowly illustrating the impact of Brexit.

On the political sphere, the Brexit rumble is heating up abroad as British officials have dropped the “have cake and eat it” approach towards negotiations. With British officials accepting that there will have to be a trade-off between access to the Single Market and political control when the UK departs from the European Union, the possibility of a “softer” Brexit comes in mind. While Sterling could receive some minor support by Theresa May changing her hard Brexit stance, I feel the growing uncertainty over the UK’s future relationship with the EU post-Brexit is likely to create serious headwinds for bulls.

From a technical standpoint, although bulls remain in control on the daily charts the GBP/USD has found strong resistance at 1.3030. There is a threat of bears making an appearance if the GBP/USD breaks back below 1.2850.

Greenback stabilizes on Monday

The Greenback clawed back some of its losses during Monday’s trading session; this has nothing to do with a change of bias, but instead has more to do with profit taking. With increasingly hawkish comments from central banks outside of the US diminishing the Greenback’s attraction and markets questioning Donald Trump’s ability to move forward with his pro-growth policies, the Dollar Index could be in store for further punishment. Much attention will be directed towards the FOMC meeting minutes on Wednesday, which will be scrutinized for further clues on rate hike timings later this year. If the minutes strike a different tone from the FOMC meeting in June, then the Dollar could turn volatile. Technically, the Dollar Index remains under pressure on the daily charts with bears eyeing the 96.50 dynamic resistance to attack once again.

Commodity spotlight: Gold

Gold bulls tasted defeat on Monday as prices tumbled to a near seven-week low at $1,235 per ounce on the back of a stabilizing U.S. dollar. The downside pressure was complimented by prospects of tighter global monetary policy which simply uncaged the dormant sellers. Although the ongoing uncertainty from Brexit and political risk in the United States has the ability to support gold in the longer term, short-term bears remain in control. From a technical standpoint, the breakdown below $1,240 should encourage a further decline towards $1220.