Most major emerging market currencies were on the back foot during Tuesday’s trading session as trade tensions, Brexit-related uncertainty and overall market caution dented risk sentiment. A stabilizing Dollar compounded downside pressures with currencies like the South African Rand, Turkish Lira, and Russian Ruble feeling the heat. With the Dollar supported by US rate hike expectations and slowing global growth fears weighing on investor confidence, this could translate to further pain for emerging market currencies. However, the South African Rand may be offered an opportunity to fight back this week if inflation figures exceed market expectations and the South African Reserve Bank adopts a more hawkish view.
Focusing on the technical view, the USDZAR trajectory is likely to remain influenced by the Dollar’s performance. If the 14.00 proves to be a reliable support, the next key level of interest on the USDZAR is likely to be based around 14.20.
Dollar buoyed by safe-haven flows
Market caution has sent investors rushing to the Dollar which remains the go-to currency in times of uncertainty.
The Dollar Index is rebounding towards the 96.30 level as of writing and is likely to extend gains on expectations of a rate hike in December. While the short to medium term outlook for the Greenback remains heavily bullish, the longer-term view remains open to questions. Cautious comments from Fed officials last Friday have prompted investors to re-evaluate the central bank’s hiking path beyond 2019. A scenario where trade tensions negatively impact global growth and emerging markets crumble to an appreciating Dollar could force the Fed to slow down its monetary tightening cycle.
In regards to technical perspective, the Dollar Index remains at risk of sinking lower if bulls are unable to defend the 96.00 support level.
Commodity spotlight – WTI Oil
The past two trading months have been unquestionably bearish for Oil markets due to ongoing supply and demand side concerns.
Rising global supply and worrying signs of slowing demand have been the key players behind Oil’s steep decline. Although Oil prices recently received a slight boost on speculation over OPEC cutting production by roughly 1 million to 1.4 million barrels per day in December, gains were capped by rising U.S. Shale production and fears of global growth plateauing. With global inventories back on the rise and global supply outstripping demand, the underlying fundamentals point to further downside for Oil prices.
Looking at the technical charts, Oil prices are painfully bearish on the daily timeframe. A solid daily and weekly close below $55.00 on WTI is likely to inspire a move towards $53.20.
Currency spotlight – GBPUSD
Where the Pound concludes this year will be heavily dictated by how markets react to the ongoing Brexit developments. The persistent uncertainty over Brexit talks and political instability in Westminster has clearly haunted investor attraction towards the Pound. The technical picture points in favour of the bears with weakness below 1.2910 opening a path back towards 1.2750.
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