Global markets felt pressured during trading on Tuesday as the elevated concerns over the immeasurable impacts of a Brexit to the global economy weighed heavily on sentiment. Although stocks edged higher on the “Bremain” optimism during trading this week, the growing caution and unease ahead of the anticipated E.U referendum vote on the 23rd of June could spark an unexpected selloff. It seems that the Brexit expectations and violent swings in oil prices have had a similar impact on global confidence, with the Brexit speculations eroding confidence towards the global economy consequently encouraging investors to scatter away from riskier assets. While bulls may be commended on their ability to send most major stocks higher amid the Brexit uncertainty, investors should keep diligent as this is still a risk-off trading environment.
Brexit fears weigh on Fed
Market participants may direct their attention towards Fed Chair Janet Yellen who is due to testify before the Senate Banking Committee in Washington DC. Expectations have rapidly diminished over the Fed raising US rates in Q2 and the ongoing Brexit developments have sabotaged all efforts by the central bank to take action. Although data in the States has followed a positive path, the global instabilities and potential threats of a Brexit to the global economy continues to force the central bank to re-evaluate its stance. With expectations fading over the Fed raising US rates amid Brexit fears, the Dollar has been left vulnerable to losses. In the event of a Brexit, the Federal Reserve may be forced to remain on standby and this should offer a foundation for bearish investors to install another heavy round of selling into the Dollar Index.
The Dollar Index opened below 94.00 on Monday and could be set to trade towards 93.00 if the current bearish momentum holds. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. Previous support at 94.00 could transform into a dynamic resistance that opens a path lower to 92.00.
Brexit warnings mount
The Brexit headlines continue to dominate the global markets with major financial figures repeatedly voicing their concerns over the negative impacts a Brexit may have on the UK and global economy. Sterling volatility has hit explosive levels and may be set to intensify further as a horrible combination of uncertainty and anxiety encourages investors to pile on the speculative positions. With the polls engaged in a fierce tug of war, it remains uncertain which camp is actually in the lead, and this simply makes the Sterling all the more unpredictable. Sentiment towards the pound remains bearish and the wariness should haunt investor attraction towards the currency further. It should be kept in mind that the strong rise in the GBPUSD was the result of “Bremain” expectations, profit taking and a weakening Dollar. A “Bremain” or “Brexit” has not truly been priced in and this should make investors all the more cautious.
Commodity spotlight – WTI Oil
WTI crude edged slightly higher towards $48.40 during trading on Tuesday as the mounting Brexit developments and risk aversion left most investors on edge. Although bulls may be commended on their ability to propel oil prices back to $48 during trading last week, prices could be set to decline lower as the oversupply concerns encourage bearish traders to attack. A Brexit may trigger a sharp decline in oil prices as concerns of a potential Brexit fueled recession renews fears over a decline in global demand. From a technical standpoint, WTI bears may need to break back below $47.00 to open a path lower to $46.00.
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