Global stocks have posted their longest streak of gains in over two years following the sharp appreciation in oil prices which boosted confidence towards the global economy consequently heightening investor risk appetite. In Europe, stocks illustrated resilience by clawing back previous losses as comments from European Central Bank economist Peter Praet led to elevated expectations of further ECB stimulus measures if negative shocks dampened the Eurozone outlook.
This feel good effect trickled into America with the S&P 500 venturing into positive territory for the year as market participants continued to digest the Fed’s dovish rhetoric which diminished speculations of more than two US rate rises in 2016. Although Europe and America may have enjoyed gains, Asian equities are currently depressed with lingering concerns over slowing global growth attracting demand for the safe-haven Japanese Yen, which in turn has dragged the Nikkei to levels not seen since late 2014.
While these short-term gains in the stock markets may show some improvement in overall risk appetite, investors must remain diligent because fears over slowing global growth and ongoing China woes continue to lurk in the background. This is a very sensitive market environment which may produce explosive levels of volatility if oil prices continue to decline which should consequently force anxious investors to scatter away from riskier assets.
Dollar vulnerability inspires bears
The rapidly fading expectations of more than two US rate rises in 2016 following the unexpected dovish FOMC meeting minutes has left the Dollar vulnerable and open to further losses. Sentiment remains bearish towards the Dollar and investor anxieties towards the global turmoil may have intensified after the Federal Reserve overlooked the positive data from the States on the rate rise decision. With the Fed focusing on the current global developments which have exposed the US economy to downside risks, any surviving expectations of the central bank taking action anytime soon has been eradicated, and this should encourage bears to attack.
The Dollar Index is heavily 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. With Dollar weakness taking center stage, bearish investors may be encouraged to send the Dollar index towards 94.00 and potentially lower. From a technical standpoint, previous support around 95.50 should become a dynamic resistance which may encourage a steep decline towards 94.00.
Sterling poised to decline
Sterling bulls were offered ample encouragement during trading last week following the Bank of England minutes which eroded any expectations over the possibility of UK interest rates being slashed despite the ongoing global turmoil. The exaggerated appreciation of the Sterling has nothing to do with an improved sentiment towards the UK economy which continues to be engaged in a painful battle with a cooling manufacturing sector, tepid inflation growth and falling GDP forecasts for 2016. With concerns over the unquantifiable impacts of a Brexit to the UK economy noticeably haunting investor attraction towards the Sterling, the currency may be poised for further declines moving forward.
The GBPUSD experienced positive gains last week with prices breaching above the psychological 1.44 resistance. Regardless of recent gains, this pair remains fundamentally bearish and a breakdown back below 1.44 may offer an opportunity for bears to take prices lower back down towards 1.42. From a technical standpoint, prices are trading above the daily 20 SMA while the MACD has crossed to the upside. A strong bullish rally and daily close above 1.46 suggests bulls have taken control of this pair.
Euro bulls ignore ECB doves
The lingering impact of Mario Draghi’s bombshell statement suggesting that there will be no further negative rate cuts by the European Central Banks continues to keep the Euro buoyed across the currency markets. Despite the ECB’s aggressive stance in slashing both deposit and key rates in a bid to devalue the Euro and jumpstart Eurozone inflation, concerns remain elevated over the possibility that the central bank has run out of ammunition. In light of these fears ECB economist Peter Praet has wasted no time in educating market participants that the central bank still has some tools to battling falling inflation with attention rapidly growing towards helicopter money. Sentiment still remains bearish towards the Eurozone but in this case, the Euro may continue to appreciate as expectations fade over the capabilities of the central bank boosting Eurozone growth.
The explosive levels of volatility in the currency markets last trading week have caused the EURUSD to swing violently, easily cutting through formidable levels of resistance. This pair has turned bullish on the daily timeframe and may be set to surge higher as Dollar weakness offers an opportunity for bullish investors to attack. From a technical standpoint, previous resistance around 1.120 may become a dynamic support for a bounce back towards 1.14 and potentially higher.
WTI declines from $41
WTI sunk back towards $39.35 during trading on Friday following the recent data illustrating an increase in the number of U.S oil rigs which renewed fears over the unrelenting oversupply of oil in the markets. It seems the oil rallies over these last several weeks have been driven by the heightened expectations that major oil producers may join the production freeze while a weakening Dollar simply boosted prices further. Regardless of these short term gains, WTI remains fundamentally bearish and major oil producers risk crashing oil prices if no solid deal is achieved in the April meeting. Investors must also remember that Iran is currently on a quest to pump output to four million barrels a day and will not be part of the meeting in April which almost defeats the purpose. From a technical standpoint, WTI bears must breach back below $38 to retain some momentum for a further decline back down towards $35. The weekly close below $40 suggests that bears are still present.
Commodity Spotlight – Gold
The ongoing fears over slowing global growth and the anxious approach fostered by central banks have continue to boost appetite for safe haven investments such as Gold, which found support around $1225. Gold is bullish and the fading expectations of any US rate rise anytime soon should encourage buyers to send prices towards $1300 and potentially higher. From a technical standpoint, prices are trading above the daily 20 SMA while the MACD has crossed to the upside. Ongoing Dollar weakness from the dovish FOMC statement could act as a catalyst which may open a path towards $1300.
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