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Optimism amid positive debt ceiling talks

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By Craig Erlam  

It would appear we’re heading into the weekend on a slightly more upbeat note, with stock markets posting decent gains, optimism rising over debt ceiling negotiations, and UK consumers feeling a little less downbeat on their prospects.

A step in the right direction

UK consumers are pessimistic as ever, albeit slightly less so, according to the latest survey from Gfk. Sentiment improved slightly to -27 this month, the highest since before Russia invaded Ukraine, but still well below the 0 level that separates optimism from pessimism.

That said, we shouldn’t get too caught up with the negative number. UK consumers are seemingly eternal pessimists, recording negative readings almost every month since 2005, barring a brief period in the middle of 2014 and then again throughout 2015 when the numbers were positive.

While we can’t get too carried away with surveys like this, it is interesting that consumers are less pessimistic given the ongoing cost of living squeeze, double-digit inflation, and high-interest rates.

It would appear the resilience in the economy over the past nine months is inspiring some confidence. Whether that will continue as more and more households are hit with higher remortgage rates, waits to be seen. But it’s certainly encouraging in the interim.

Bullish momentum in crude prices?

Oil prices were rebounding again on Friday alongside a slight uptick in market sentiment more broadly. Perhaps some of the confidence in Washington that a deal on the debt ceiling isn’t far away, amid “steady progress”, is filtering through to the markets, although default was never a realistic possibility in the first place.

Crude has gathered a little upward momentum over the last week or so, with prices making higher lows on the way, which could be a bullish signal short term.

Brent has continued to see resistance around $77-78 though, but a break of this, taking it back into December to March territory, would be encouraging, with $80 then being the next big test.

Gold heading for a deeper correction?

Gold prices fell again on Thursday, but saw some support on Friday around a very interesting support level.

The yellow metal has been under pressure amid rising US yields and a stronger dollar and now it’s pulled back to $1,960, a big support zone in the second half of March and throughout April, as well as a big resistance point in early February.

A significant break below could be a bearish signal in the near term, potentially signalling a much deeper correction is on the cards in the coming weeks.

Another level of interest is $1,940, with a break further confirming that the tide has turned, with the focus then shifting back towards $1,900.

Bitcoin still vulnerable

Bitcoin has managed to hold onto recent gains, having consolidated since falling below $27,000 last week. It had a little wobble on Thursday, falling more than 3%, but appears to have regained some composure on Friday.

That said, it continues to look a little vulnerable in the short term, with $25,000 the next big test below.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.