12 December, 2016
Financial markets were chaotic on Thursday after the ECB’s unexpected move to reduce its 80 billion Euro monthly purchase to 60 billion from next April which caught participants unprepared. The central bank’s conflicting combination of tightening and loosening measures sparked explosive levels of volatility as fears heightened over tapering producing unwanted levels of uncertainty. Investors warmly welcomed Mario Draghi’s soothing dovish comments where he repeatedly stated that tapering was not discussed, ultimately redirecting the attention back towards the nine month QE extension. Although the central bank will be scaling back the amount of bonds it will purchase from April 2017, the prospects of more QE could alleviate some Eurozone concerns, while boosting investor confidence.
Despite the short term positivity, it should kept in mind that the Eurozone is still exposed to major risks as concerns elevate over faltering economic growth while political instability from Italy could force the central bank to take further action. The rising uncertainty from the upcoming French and German election coupled with Italy’s woes could leave the Euro vulnerable to further losses as bears install heavy rounds of selling.
From a technical standpoint, Thursday’s sharp EURUSD selloff has revived the parity dream with Dollar’s resurgence from a probable US rate hike potentially sparking a steeper selloff. Previous support at 1.065 could transform into a dynamic resistance which opens a path lower towards 1.050.
WTI Crude turns sensitive
WTI bulls were installed with some inspiration on Thursday as optimism heightened over non-OPEC producers agreeing to cut production following last week’s unexpected OPEC production cut deal. Oil price sensitivity may be set to intensify as the hopes of OPEC and non-OPEC members working together to fight the oversupply woes create speculative boosts in oil prices. While the short term gains remain impressive, Oil still remains pressured by the lingering oversupply concerns with fears of OPEC being unable to fulfil their 32.5 mbpd production ceiling in January, providing an opportunity for sellers to attack. If Saturday’s meeting concludes unsuccessfully with non-OPEC members disagreeing to cut production by the 600,000 bpd OPEC wants then Oil could be left vulnerable to losses.
Commodity spotlight – Gold
Gold was heavily pressured during trading on Thursday following the European Central Bank’s decision to start tapering its monetary policy stimulus to the Eurozone which sparked explosive levels of volatility across the board. Dollars resurgence amid the rising US rate hike expectations complimented the selloff with prices finding comfort around $1170. The heightened speculations of a US interest rate rise this year have exposed the metal to downside risks while instances of risk-on continue to repel investor attraction further. From a technical standpoint, Gold fulfils the prerequisites of a bear trend as there have been consistently lower lows and lower highs. Next week’s US rate hike increase could install Gold bears with enough inspiration to send prices lower towards $1150.
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