The stock markets displayed signs of exhaustion during trading on Thursday following the erratic swings in oil prices which intensified global risk aversion and consequently soured investor risk appetite. This risk-off environment spurred demand for safe haven assets such as the Yen this morning which encouraged a steep -1.27% decline in the Nikkei index dragging most other Asian equities into red territory. European markets concluded softly on Thursday amid the weakness in mining stocks and may be set to open lower this morning while American equities also showed signs of weakness snapping three solid days of gains as the uncomfortable reality over the unstable global markets hits investors. It is quite apparent that the stock market rallies have had nothing to do with an improved sentiment towards the global economy but heightened expectations over central banks unleashing further stimulus and ongoing oil production cut expectations.
Sterling under pressure amid Brexit talk
The elevated anxieties and growing uncertainties about the potential impact of a Brexit vote on the UK economy have haunted investor attraction towards the Sterling and this continues to encourage sellers to attack prices. For an extended period the Pound has been left vulnerable from the fading expectations around the Bank of England raising UK rates while the notoriously low levels of inflation continue to renew concerns over the potential slowdown in economic momentum. External developments from falling oil prices to ongoing China woes have opened the UK economy to downside risks and this Brexit development simply adds to the pain. The Sterling remains quite sensitive and if by any chance expectations mount over the possibility of the UK departing from the European Union after the talks today, then Sterling bears should receive ample encouragement to send prices tumbling across the board.
The GBPUSD is bearish on the daily timeframe as prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. Previous support at 1.440 may act as a dynamic resistance which should encourage a further decline towards 1.420.
Today investors may direct their focus towards the US inflation report which is expected to print below expectations following the steep declines in oil prices which would have weighed heavily on inflationary growth in January. The current unstable economic landscape has left the Fed under immense pressure not to raise US rates anytime soon and this has left the Dollar noticeably vulnerable while domestic data from the States continues to follow a soft path. Further weakness in today’s inflation report may install Dollar bears with inspiration as expectations rapidly diminish over the Fed taking any action in 2016.
Commodity spotlight – WTI Oil
WTI tumbled back towards $30 during trading on Thursday following the record high build up in U.S crude stocks which intensified the heightened anxieties over the unrelenting oversupply in the markets. This release came after Saudi Arabia explicitly stated that it was not prepared to cut oil productions despite the pending deal to freezing output levels at January’s record highs. In the way that current developments are turning out, it seems quite unlikely that a production cut or freeze may materialize as the conflict of interest between OPEC and non-OPEC members continues to act as an obstacle. Eventually, these speculative boosts in oil prices from the empty promises of production cuts may subside with WTI oil sinking lower back towards $25. From a technical standpoint, this commodity is bearish and a breakdown below $30 may encourage a further decline towards $25.
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