Global equity markets displayed erratic characteristics during trading on Tuesday as the violent swings in oil prices which toggled risk appetite encouraged anxious investors to systematically offload and reload positions in various financial instruments. Despite being heavily depressed at the start of the week, European and American equities managed to claw back the steep losses closing positive, following OPEC’s renewed calls for rival producers to slash supply which boosted expectations of an emergency meeting coming forth. While some gains were realized in other arenas on Tuesday, Asian stocks remained pressured with both the CSI300 and Shanghai Composite Index concluding over -6% lower as concerns heightened around the discrepancies between trade data recorded by China and Hong Kong.
It seems quite clear that oil prices have some influence on the stock markets with the turbulent movements providing or withdrawing confidence towards the global economy which consequently impacts investors risk appetite. With oil prices set to decline further amid the elevated fears around the unrelenting oversupply in the heavily saturated markets, risk appetite may continue to wane and that should encourage further selloffs in global stocks.
FOMC in focus
The main focus and event risk for Wednesday will be the FOMC meeting in which markets broadly expect US rates to be left unchanged at 0.5%. While most continue to suggest that the FOMC may be a non-event due to the absence of a press conference, I feel this should force investors to peruse the statement in greater detail for clues on future rate hikes. Since the previous meeting in December the economic landscape has changed drastically with stock markets, oil prices and global growth forecasts all following a negative trajectory, while economic data from the States have been lackluster. Fundamentally these factors should dim the prospects of future rate hikes but with ongoing discussions suggesting that the Fed made a mistake by raising US rates in the first place, it seems likely that the minutes may adopt a hawkish bias similar to December in an attempt to retain credibility and prevent further disruption in the financial markets.
Currency Spotlight - EURUSD
The EURUSD remains in a wide range despite Mario Draghi’s dovish rhetoric towards the health of the Eurozone which boosted hopes of further stimulus measures by the ECB in March. While there is still a live divergence in both economic sentiment and monetary policy between the United States and Europe, the FOMC tonight, if directed in the path of the hawks, should inspire bears to send the EURUSD lower. From a technical standpoint, the pair has entered a flat territory with prices marginally below the daily 20 SMA while the MACD is flat. A solid breakdown below the 1.080 support should encourage a further decline towards 1.070 and potentially lower.
Commodity Spotlight – GOLD
Gold continues to exploit the shaky sentiment towards the Dollar, while the fresh wave of risk aversion from ongoing global woes and plummeting oil prices has boosted appetite for have safe haven assets consequently providing a platform for Gold bulls. Although the growing expectations around the Fed holding rates in the near term have reduced some downwards pressure on Gold which allowed a breach above the stubborn $1110 resistance, if a hint of hawks can be salvaged from today’s FOMC statement then bears may be provided a chance to send this metal back below $1110.
From a technical standpoint, the breakout above $1110 turned prices bullish on the daily timeframe. The candlesticks are trading above the daily 20 SMA while the MACD has also crossed to the upside. Previous resistance at $1110 may become a dynamic support which should encourage a further incline towards $1125.
The NZDCAD is technically bearish on the daily timeframe as there have been consistently lower lows and lower highs. Prices are trading below both the 20 and 50 SMA while the MACD has also crossed to the downside. A solid daily close below 0.9100 should encourage a further decline towards 0.9000.
The USDJPY is currently engaged in a tug of war with a strong USD and JPY pulling prices to different directions. While the candlesticks have broken above the daily 20 SMA, the MACD is still trading to the downside and this gives off a mixed signal. A decisive breakout above 118.90 may suggest a further incline towards 119.50.
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