Global stocks experienced an incredible rebound during the final two days of trading last week as expectations mounted around the central banks expanding stimulus measures to stabilize the turmoil in the financial markets. The rising optimism over the possibility that the Bank of Japan (BoJ) may unleash further stimulus measures at its meeting this week encouraged a sharp appreciation in Japanese stocks which rose over 5% last week and this pushed Asian equities into the green territory. European and American equities followed the same positive trajectory as the abrupt bounce in oil prices boosted confidence towards the global economy and consequently heightening risk appetite.
While more short term gains may be realized in the stock markets as speculations inflate towards the central banks curbing the turmoil in the financial markets, the fundamentals which have been dragging prices lower have not changed whatsoever. Anxieties around slowing global growth, ongoing China woes, and emerging market weakness continue to weigh heavily on global sentiment, while the extended decline in commodity prices have sabotaged most major central banks inflation goals. It must be understood that overall investor confidence is still low and this relief rally may come to an abrupt end when oil prices resume their declines or if central banks disappoint and hold off unleashing fresh stimulus measures in the near term.
WTI Oil experiences relief rally
WTI oil bulls were installed with inspiration during trading on Friday with prices jumping 9% as the growing prospects of fresh central bank’s stimulus measures and current storm in the U.S heightened expectations for fuel demand. Regardless of recent gains, this commodity remains heavily bearish and the recurrent theme of an excessive oversupply in the global markets should limit how high prices can appreciate. Iran’s sanction relief which has opened doors to more supply in an already saturated market has haunted investor attraction further, while ongoing China concerns contribute to the fears that global demand may be waning.
Global inventories of crude oil have risen incessantly and an appreciating Dollar simply adds to the pain which has resulted in some OPEC members requesting an emergency meeting. It remains very clear that the OPEC is willing to leave production unchanged in a bid to regain market share and, as a result, these emergency meeting requests have been rapidly shunned. WTI may be experiencing a relief rally but bears remain in control as long as prices can keep below the psychological $35 level. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown back below $30 may suggest the return of the bearish momentum which should encourage a further decline back towards $28.
Euro pressured by stimulus hopes
Today investors may direct their focus towards the German Ifo Business Climate Index in the European session which should offer some clarity on the health of the Eurozone. The elevated fears around slowing global growth and China woes have already exposed the Eurozone to downside risks and if the results from the German Ifo fail to meet expectations today then the Euro may be left vulnerable as expectations mount around the ECB taking further action in March.
The EURUSD declined further on Friday marginally closing above the sticky 1.0800 support following Mario Draghi’s dovish rhetoric. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD gains momentum to the downside. This pair is bearish on the daily timeframe and a solid daily close below 1.0800 should encourage a further decline towards 1.0700.
The NZDUSD is technically bearish on the daily timeframe as there have been consistently lower lows and lower highs. Prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. A breakdown back below 0.6450 should encourage seller to send prices towards 0.6350.
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