Investors entered Wednesday’s trading session with caution after the sudden dismissal of the U.S Secretary of State, Rex Tillerson, stimulated fears of rising U.S protectionism.
Asian stock markets ventured into the negative territory during early trading, following overnight losses on Wall Street. Although shares in Europe held steady, thanks to dovish comments from Mario Draghi, an absence of risk appetite could result in further downside pressure. With reports that the U.S is seeking to impose tariffs on Chinese imports likely to weigh heavily on sentiment, Wall Street remains vulnerable to further losses.
Dollar unimpressed by inflation data
The Dollar lost ground against a basket of major currencies on Tuesday, after U.S inflation data for February failed to pack a punch.
Inflation printed in line with market expectations at 0.2% in February, reinforcing views that the Federal Reserve will raise U.S interest rates gradually this year. Dollar bears were more concerned with the sacking of Rex Tillerson, which sparked concerns of growing instability within the Trump administration.
With the recent Trump drama fuelling political uncertainty in Washington, the Dollar could find itself exposed to downside risks. Taking a look at the technical picture, the Dollar Index remains vulnerable to losses on the daily charts if bulls are unable to conquer the 90.00 resistance level. Sustained weakness below 90.00 may invite a decline lower towards 89.50. Alternatively, a daily close above the 90.00 level could elevate prices towards 90.30 and 90.50, respectively.
Currency spotlight – EURUSD
Euro bears entered the scene on Wednesday, after ECB President Mario Draghi adopted a dovish tone at a conference hosted by the Institute of Monetary Financial Stability in Frankfurt.
Draghi stated that officials needed to see more evidence of inflation venturing towards the 2% goal before the central bank would consider fully withdrawing monetary stimulus. Sellers were granted permission to drag the Euro lower after Draghi said that “monetary policy would remain patient, persistent and prudent”. The EURUSD slipped lower on Wednesday following Draghi’s speech, with prices trading around 1.2370 as of writing. An intraday breakdown below the 1.2350 could encourage a decline towards 1.2300. Alternatively, a breakout above 1.2400 could result in a move higher towards 1.2440 and 1.2500.
Commodity spotlight – Gold
Gold glittered on Tuesday evening and extended gains on Wednesday morning, as political uncertainty in Washington supported appetite for safe-haven assets.
A softer Dollar complemented the upside with prices trading around $1325 as of writing. With concerns revolving around U.S protectionism and political drama leaving investors on edge, Gold could bounce back to life. While in the medium to longer term, expectations of higher U.S interest rates are likely to create headwinds for the metal down the road, short-term bulls could benefit from the current uncertainty.
From a technical standpoint, the yellow metal remains under pressure on the daily charts as prices are below the 50 Simple Moving Average, while the MACD trades to the downside. A solid daily close above $1330 could bring bulls back into the game with the next level of interest at $1340. Alternatively, if prices fail to keep above $1324, Gold remains at risk of sinking back to $1313.
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