MARKETS: Trying to recover some momentum

There are too many anxieties for investors right now including concerns over a complete lack of timing for a US interest rate hike, fears over China entering a deep economic downturn, continual growth concerns in both Europe and Japan, alongside depressed commodity prices. The timely combination of all these factors together is why I refuse to believe that the overall market sentiment is going to transform into a positive one as we enter the final quarter of the year.
Speaking of commodity prices, WTI oil is moving slightly higher before the weekly US inventory report later Wednesday. I still believe that we are at risk to falling towards at least one further milestone low before the year is over. It is expected that US inventories have increased over the past week, and any repeated signs of the aggressive oversupply in the markets remaining should weigh on investor sentiment and continue to limit gains for WTI. While oversupply remains a dominant threat to investor sentiment, the elevated anxieties over the pace of the global economy increases the possibility that there will be less demand for the commodity. Reduced demand for oil would not only be another catalyst for a heavy sell-off, but it would also expose the currencies that have economies dependent on commodity exports to further weakness.
Momentum for Gold is looking weak, with the metal currently looking like it is going to record its fourth day of successive losses. Buying power for Gold has taken a hit following the various positive comments from Fed policy makers that the central bank still intends to begin raising rates this year despite disappointing some market participants by leaving rates completely unchanged during their September meeting. The Non-Farm Payroll report on Friday afternoon represents a major risk to the Gold markets. If the NFP disappoints and encourages further suspicions that the Fed will be left with little choice but to continue delaying raising rates, Gold could once again begin recovering momentum.
GBPUSD: Optimism is increasing that the GBPUSD might have found a potential bottom after prices managed to strongly rebound once again from what has become vital support around the 1.5120 area. The Cable suffered massively throughout September as a result of a risk-off trading attitude from investors, and the downside spiral from 1.57 towards a potential re-entry to 1.50 had nothing to do with sentiment towards the UK economy changing suddenly. The UK remains robust and while the GDP data earlier Wednesday might have shown economic momentum declining slightly, the economy expanding by an annualised 2.4% is still the envy of most around the developed world. The increased Pound demand has also led to the EURGBP dropping away from its four-month high at 0.7435 to nearly 100 pips lower at 0.7381.
EURUSD: The Euro not only dropped against the Pound on Wednesday, but also against the Dollar with the EURUSD falling to 1.1211 after the EU economic sentiment took another hit following economic data showing that inflation unexpectedly turned negative during September for the first time in six months. The return to another period of negative inflation has furthered speculation that the ECB will need to add further Quantitative Easing to its current stimulus package. We should also expect that members of the ECB will continue to attempt at talking down the Euro as a weaker currency is seen as an inflation boost. Having said that, the Euro has only jumped against currencies as a result of the pushed back US interest rate expectations and the recent gains in the EURUSD specifically have nothing to do with an improved sentiment in the EU economy.

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