Global stocks overlooked the resurgence in oil prices with most major stocks tumbling to fresh six week lows during trading on Thursday as market participants braced over the possibility that the Federal Reserve could raise rates in Q2. This anxiety rippled into the Asian markets that were heavily exhausted following a losing battle against risk aversion, while Yen appreciation pressured Japanese stocks. In Europe, concerns over tepid economic growth in the Eurozone and elevated fears over the state of the global economy have ensured most European equities follow a negative path. With expectations mounting that the Fed could take action despite the unsavory global economic landscape, Wall Street descended deeper into the abyss and this can be view in the S&P 500 that closed -0.4% lower. With oil prices rallies losing their grip on global stocks, this combination of heightened US rate rise expectations and overall uncertainty could encourage investors to scatter away from stocks to safe-havens.
Dollar bulls lean on FOMC lifeline
Dollar bulls were installed with inspiration this trading week following the hawkish FOMC meeting minutes that boosted expectations over the Fed taking action in Q2. Although data from the States has shown improvements, April’s tepid NFP figure and ongoing concerns over the state of the global economy simply provide a compelling reason why the central bank may take no action in June. While optimism continues to rise that July could be a live possibility, bulls could be exposed to a hard landing when the central bank decides to stay on the fence till Q3. It should be kept in mind that anxiety enshrouds the financial markets, while external developments such as the Brexit, volatile oil prices, and Eurozone growth have left most investors on edge. Dollar bulls have taken the Dollar Index above 95.00 but with exhaustion visible, bears simply need to break back below 95.00.
Sterling turns sensitive
The Sterling has surged to unfathomable heights this week as the string of positive domestic reports and leading “Bremain” campaign provided a foundation for bullish investors to install a round of buying. Regardless of these short term gains, the Sterling remains bearish and sensitivity could heighten ahead of the E.U referendum vote on the 23rd of June. With overall UK data still tepid and expectations periodically diminishing over the Bank of England raising rates anytime soon, the Sterling could be poised to decline in the medium term. While the result of the referendum may be uncertain, what is certain is the uncertainty that continues to mount which has consequently haunted investor attraction towards the Sterling.
WTI Crude trades below $50
WTI Crude continues to display erratic characteristics as a mixture of Dollar Strength, supply disruptions and rising output from Iran and Europe weigh heavily on sentiment. Although WTI bulls have displayed resilience with prices trading towards $50, the foundation for the incline seems weak and bears could exploit this to send prices lower. Investors may turn their attention to the pending OPEC meeting in June and if this follows the same pattern as Doha, then bears could attack prices back towards $40. From a technical standpoint, bulls may have an extra advantage if prices manage to break and close above the solid $50 resistance. A break back below $48 should offer enough momentum for a further decline towards $46.50.
Gold bulls challenge $1285
Gold prices plunged during trading on Thursday as a mixture of Dollar strength and reinforced expectations over the Fed raising US rates in Q2 rapidly dulled the metals allure. Gold remains dictated by interest rate hike expectations and with optimism growing that the Fed could take action in Q2; prices have been left heavily depressed. Although this yellow metal has sunk below $1250, there could be some light of hope if risk aversion encourages investors to install another round of buying. From a technical standpoint, a daily close below $1250 could open a path towards $1225.
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Written by Lukman Otunuga, Research Analyst at FXTM
