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The GBPUSD is continuing to participate in the recently seen downward spiral and recorded a near two-year low at 1.4808. The complete nosedive from 1.55 to 1.48 in around three weeks has taken some by surprise, although I do think the UK election in looming in May is playing a role in the decline. Looking at the charts, if the technical break below 1.4813 is then followed by 1.4781 this could lead to a sudden rush in bearish momentum for the pair. To be honest, if the completely unexpected volatility which we saw during the Scottish Referendum last September strikes twice – a potential move to the low 1.40’s for the GBPUSD is on the horizon.

Another factor behind the bearish momentum is also probably the comments from BoE Governor Carney regarding inflation yesterday. After easing traders fears over the issue a fortnight ago, Carney hinted at a change of opinion (in a similar fashion to his views on a UK interest rate rise last summer) when the BoE Governor reiterated yesterday that UK inflation is likely to turn negative, and that he will probably have to write more letters to the UK Chancellor explaining why. When you take a step back and think about the brutal punishment the euro has come under in recent weeks, it can’t be ruled out that it was a tactful move from the BoE governor to talk down the pound. After all, the EURGBP was at heavy risk of extending below a multi-year low at 0.7013 and this makes UK exports very vulnerable to less demand.

The USD is recovering its slight losses from the previous day; however I am still trying to get my head around how retail sales can remain so weak despite such consistently strong gains in employment and consumer confidence. Most traders will now be fully looking ahead to next Wednesday’s FOMC statement and the ongoing fascination regarding whether the Federal Reserve might remove the word “patience” from when it can raise rates. Personally, I find it more likely that the Fed will outline that while the US economy is continuing to make progress, it will continue to closely monitor inflation expectations and any potential risks that the stronger USD is having on the economy.

The overall tone could also be a repeat of the previous message that it is in no hurry to begin raising US interest rates, which would further my long-held suspicions that September is the time to expect an interest rate hike. Following the Eurodollar and Gold taking such heavy punishment over the past week or so, I do think where the USD swings over the next week will be the next driver in which direction these instruments move.

Elsewhere, the oil markets have attracted attention once again following WTI Crude Oil extending below its one-month trading range earlier this week and now finding a new six-week low at $46.51. This is only $2 above its milestone low at $44.36 and a return to this area can’t be ruled out of the equation largely because the supply and demand concerns have still not changed. The oversupply is at a reported two million barrels a day, but with recent US Crude inventory data surpassing expectations by an astonishing amount, alongside reports of output increasing elsewhere – it wouldn’t surprise me if the oversupply is stretched further than that.

The next OPEC meeting is scheduled for around May/June time and it is self-explanatory that the oversupply will be a hot topic of agenda, perhaps the oil bears are going to take advantage of the time they have left before the meeting and push the price of WTI Crude back to that critical $42 area. This is where it seemed most analysts (myself included) thought a potential floor in price could be located, before we had the sharp bounce above $44.36.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

Follow Jameel on Twitter @Jameel_FXTM

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