David Jones, Chief Market Strategist of Capital.com:
At the start of the week, traders are braced for what could be something of a roller coaster in terms of volatility. Last Friday’s USA employment numbers came in under expectations – jobs were still added in the American economy, but not at the rate that analyst were expecting. This continued to put pressure on stockmarkets going into the weekend – a theme that could continue this week. Of course, it is only a few weeks since the broader US bench mark, the S&P 500 index set fresh ll-time highs, so last week’s slide needs to be considered with that in mind. There have been plenty of sharp falls on the way out to uncharted territory for US shares, and these have ultimately proved to be great buying opportunities. Any drops would still be viewed the same way for now but, even so, Friday’s weak finish could make for some wild swings in stock markets this week.
The worse than expected US employment data also weighed on the dollar. There are a couple of obvious factors at play here – a slightly weaker US economy plus little reason for the US central bank to accelerate its program for raising rates. All this made for a good recovery for both the pound and the euro towards the end of last week after being under pressure for the first half. Brexit continues to be the main driver for the pound and despite early weakness last week, GBPUSD still seems to be in recovery mode, buoyed by what looks like finally some progress on UK/EU discussions. Assuming this recovery remains in place, the first objective would be a run back to the 1.33 levels hit towards the end of September. Brexit discussions aside, the focus for GBP traders this week will be Wednesday’s latest update on the state of the UK economy – with quarterly GDP expected to show growth of around 0.2% over the past three months.
Last week saw the oil price once again hit a fresh multi-year high, almost equalling levels last seen in November 2014. This is another market that may have a temporary pause following the weaker US employment data – but oil still has plenty of momentum behind it and a drop may just serve to bring in those investors who feel they have missed out on the surge over recent weeks – acting as a backstop to any deeper weakness.
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