Markets seem to have stabilised for now but it may be temporary as investors adjust for an environment of lower inflation, lower growth and higher interest rates, although it’s still far from a done deal that interest rates will indeed rise anytime soon.
The UK’s benchmark FTSE 100 is on course to record its longest running streak of weekly losses for over a year and on many indicators is signalling that it’s over sold so we could see a bounce especially since yesterday’s price action looks to have formed a long legged “doji” candlestick which is considered to be a buy signal. This does not mean the sell off is over of course and the 10% correction from the highs we’ve seen to date could be extended before better buying levels are presented.
For FX markets, GBPUSD recaptured the 1.6000 level hitting 1.6100 overnight following dovish comments from the Fed’s James Bullard which caused the dollar’s intraday strength to fizzle out, but is giving back those gains retreating to 1.6035 at the time of writing. For what is likely to be a quiet end to a very hectic week, with the absence of any major data releases, one currency to keep an eye on is CAD as Canadian inflation data is released later today.
USDCAD has broken to new five year highs this week but its rally has stalled along with the wider dollar weakness so anything higher than the 2xpected 2.0% for CPI could see further profit taking in USDCAD. Also today we see the Fed’s Yellen speak at 13.30 UK time and this will be very closely watched to see if she echoes Bullard’s comments from yesterday.