GBP/USD closer to 1.70 after BoE surprising slightly dovish tone

Market Review

There was a very clear upward direction in the e-mini S&P yesterday as the equity index continued to power forward despite massive geo-political risks and made yet another all time high. The data in the afternoon saw a slight milder CPI number, initially leading to a spike higher in the EURUSD , though this was followed by profit-taking only minutes later as traders are not confident holding long positions in the currency pair, and it safely ended the session in negative territory. US Treasuries had a much more straight forward reaction to the data and went bid and hit our stop to the tick before selling off for the next two hours, and settling just above where it opened. Crude oil had a lacklustre session where it was caught in two ranges, though one may also argue it was trending lower as it finished the day 130 ticks lower than the high. The strategy on this product was obtained and closed at a small profit at 5PM British time.

Today's Fundamental View

This morning have seen some aggressive movement in cable, as the BoE minutes revealed a unanimous vote on keeping rates unchanged, and surprised the market by its slightly dovish tone, where it indicated there was little proof that inflation is building in the economy. Subsequently the currency has weakened across the board, and is currently trading closer to the 1.70 handle than any other time in July, and should it break it may indicate a weaker month for the currency is ahead of us after making a new six year high earlier this month. For today’s session we remain bullish on equities, though there is not a lot of data to drive it other than consumer confidence, which has been on the mend for the last few years after hitting a low in 2009 after the collapse of the economy. The 2000 handle is now properly in sight, and we expect to trade closer, if not at it, at the end of this week, although today may be too optimistic. Apple earnings last night missed on the headline revenue, though earnings per share were stronger than what analysts had estimated. Pre-market the company is down 0.44%. Crude oil inventories this afternoon expectations are for a drawdown, though the API last night saw a number quite a bit higher. At the same time Oklahoma delivery hub inventories are at a six year low which may start drive prices higher. Currently the amount of oil is at a crucial level as the system of pipes and tanks may be damaged if the inventories stand below 20 million barrels. Last week saw the inventory at 20.3 million. Today’s strategy will for these reasons be slightly bearish on crude, as we expect inventories to increase on both system reasoning as well as overnight number being higher. US10Y should not be widely affected by yesterday’s inflation number, and we may start seeing a continued move down during today’s session.
 

Alternative View

Comments from Russian officials may halt the move up, though this should still lead to USD strength in a risk off move. Please remain aware of all developments coming out of Ukraine, Russian and the Middle East and keep a conservative outlook with regards to risk. Over exposure in markets with such uncertainty is dangerous and should be avoided.