By Lukman Otunuga, Senior Research Analyst at FXTM
Asian shares were up Tuesday morning, drawing strength from the tech-driven Wall Street rally overnight. It seems like solid corporate earnings have soothed concerns around inflationary pressures, with the improving risk sentiment elevating equity markets.
European markets opened marginally higher, with US futures looking healthy. The Dollar Index (DXY) declined to a one-month low amid the risk-on sentiment, while gold is on the move, gaining roughly 0.7%.
This will a big week for equity markets as third-quarter earnings season gets in full swing.
Since corporate results officially kicked off last week, the reports have painted a positive picture, with major US banks smashing analyst forecasts. Big names like Netflix, Tesla and Intel among many others will be under the spotlight this week as investors pay close attention to their earnings.
The key questions on the minds of investors will be what impact higher inflation, supply chain disruptions and labour shortages have on third quarter numbers.
Should we have another solid week of results, this may inject S&P500 bulls with enough confidence to venture into uncharted territory beyond its all-time high.
Currency spotlight – GBPUSD
It has not been a great start to the week for sterling which has weakened against most G10 currencies. Bulls struggled to draw inspiration from Bank of England Governor Andrew Bailey’s hawkish remarks over the weekend with expectations rising over the BoE raising interest rates at its November meeting.
However, concerns around economic growth and stagflation fears continue to weigh on the pound. All eyes will be on Governor Bailey’s speech Tuesday afternoon which could provide more hints on interest rate moves.
Looking at the technical picture, the GBPUSD is up on the back of a weaker dollar. Prices are approaching the 100-day Simple Moving Average around 1.3810. A strong move above this point could push the GBPUSD towards the 200-day Simple Moving Average around 1.3850.
Commodity spotlight – Gold
Gold prices are advancing Tuesday, gaining roughly 0.7% thanks to a weaker dollar and lower Treasury yields. The precious metal is likely to be influenced by conflicting forces this week as investors juggle growth concerns and inflation fears amid prospects of tighter monetary policy.
Should the dollar continue to weaken, gold has the potential to rechallenge $1800, a level just above the 100-day and 200-day Simple Moving Average.
In the meantime, intraday bulls seem to be in the driving seat with the first level of interest at $1784. If the 50-day Simple Moving Average offers resistance and weakens bullish momentum, prices could decline back towards $1760.
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