Global stocks received another welcome boost during trading last week following the positive swings in oil prices which boosted confidence towards the global economy consequently heightening investor risk appetite. The resurgence in upwards momentum was complimented with an impressive NFP figure of 242k from the US that alleviated concerns over the health of the world’s largest economy. This feel good effect and growing optimism towards further US rate hikes translated to American equities surging, with the S&P 500 clipping levels not seen in almost two months. Although the technical bounces in oil prices and impressive US labour report did warrant an opportunity for bulls to take front seat, the novelty may have worn off as Asian equities have sunk back into red territory during trading on Monday. This bearish contagion has already seeped into the European equity arena with the FTSE100 trading -0.73% lower as of writing and may likely force American stocks to relinquish the short term gains of Friday.
This decline should be of no surprise as concerns remain elevated towards the health of the global economy while the technical bounce in oil prices has been fueled by inflated expectations of potential production cuts. The Eurozone’s failing battle with inflation continues to add to the global woes and investors remain anxious towards the developments occurring within China. Brexit fears have added to the horrible mixture of events and this highly sensitive catalytic combination may continue to leave stock markets depressed in the longer term.
NFP and the Dollar
Investors were left puzzled during trading on Friday following the mixed payroll performance which tore sentiment towards the US economy in various directions and questioned the likelihood of US rates being increased in 2016. Although the headline NFP number of 242k exceeded expectations and offered some encouragement to the USD bulls, this was swiftly seized by the noticeable decline in hourly earnings which came in at -0.1%, consequently weakening the Dollar. If not for the concerning drop in hourly earnings, economic data from the States has followed a positive path in the month of February with American stocks clawing back previous losses as the oil price rebounded. While the Dollar Index currently shows some signs of weakness with support at 97.00, the flame of hope provided by the undeniably strong NFP report should raise the likelihood of the Fed taking action and offer a foundation for the USD bulls to send prices back towards 99.00.
EURUSD pressured ahead of ECB
The EURUSD bulls acquired some inspiration from Friday’s mixed NFP report which provided a foundation for the pair to lurch towards the 1.1050 resistance. For an extended period, the growing speculations over the ECB unleashing further stimulus measures in March have left the EURUSD depressed while ongoing fears of the impact of Brexit towards the Eurozone continue to encourage investors to offload the Euro. Although this pair is bearish on the daily timeframe, the looming ECB press conference on Thursday should limit any abrupt movements as most investors remain on standby. It is widely expected that the central bank slashes deposit rates once more in a bid to force banks to lend which may consequently jumpstart inflation. The ECB remains in a one sided losing battle with stagnant inflation levels and Mario Draghi is under pressure to unleash an aggressive stimulus package to prevent further disappointments.
From a technical standpoint, prices are below both the 20 and 200 SMA while the MACD is flat. Prices may continue to trade within the wide range with 1.1050 acting as a strong resistance until the press conference this Thursday.
WTI breaches $35
The heightened expectations of a possible production cut mixed with ongoing speculations that the global outlook may be improving have provided a foundation for WTI bulls to send prices to fresh highs at $36.70. Although oil rigs in the States have noticeably declined to 392, the lowest since 2009, supply still remains at alarming levels in the heavily saturated markets and this will continue to haunt investor attraction towards oil in the longer term. The sustainability of the current rebound in oil prices is highly questionable and this relief rally should offer bearish investors another opportunity to install another round of selling which should send WTI back towards $30.
From a technical standpoint, bears must breach and attain a daily close back below $35 for a further decline towards $30. If the $35 support proves too strong for bears to breach, then the next relevant resistance will be based at $38.
Commodity spotlight – Gold
Gold bulls managed to exploit the Dollar weakness from Friday’s US labour report and this consequently sent the yellow metal surging to fresh 13 month highs at $1279.7. This precious metal is heavily bullish and although the expectations of further US rate hikes have provided some headwinds for the bulls, the ongoing fears towards the health of the global economy and central banks enforcing negative rates continue to boost the metal’s allure. With prices surging over 20$ from the December low, this is indeed a bull market, and the next relevant resistance is based at $1400. Ongoing Dollar weakness may act as encouragement for bullish investors to send Gold towards $1340.
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