FTSE underperformer again as sterling re-finds some form

European equity markets are poised for a slightly higher open on Wednesday, with the FTSE looking like the underperformer once again as sterling marches higher.

The pound broke back above 1.30 against the dollar on Wednesday, registering more than 1% gains on the day in the process. There have been a variety of reasons touted for the gains on Tuesday, including Brexit optimism on reports that the Malthouse Compromise has been ditched and stronger jobs data.

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Whatever the reason, it’s certainly looking more bullish than it did a few days ago and I’m sure a weaker greenback isn’t doing that any harm. Whether it can break beyond 1.32-1.33 region without something more significant on a deal with Brussels I’m not convinced.

Gold buoyed by US yuan demands

Gold took another big leap higher on Tuesday, buoyed by a softer dollar as speculation mounted that the US is demanding that China stops devaluing its currency to support exports. The issue of currency devaluation has long been a complaint of the Trump administration and the decline in the yuan as tariffs were imposed will not have eased those frustrations, even if some would argue it’s a natural response to them.

The last week or so has been very good for gold, gaining more than 3% and now testing $1,340 as it powers on. It’s not just the dollar moves which have been driving it on, in fact the dollar has been a hindrance for most of this month. The dovish shift by central banks across the globe is typically bullish for the yellow metal and we’re seeing that play out nicely.

WTI dragging its feet as traders eye inventory numbers

The weaker dollar is also giving oil a lift although in this case, we’ve run into strong technical resistance around $56 and WTI is struggling to break through. Brent is one step ahead – having broken through $65 late last week but is now being held back as its US cousin drags its feet.

With API and EIA oil inventories due in the next couple of days, and US oil rig data on Friday, there’s plenty of opportunities for something to provide the catalyst for the breakout, which could see the bulls gain significant momentum.


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