Markets mellow as Christmas looms

23 December, 2016

Financial markets were exhausted on Thursday with most stocks drifting lower as investors offloaded positions ahead of the Christmas break. Asian shares have already retreated during early trading on Friday with European markets expected to remain subdued as the holiday season liquidity sinks in. Although Wall Street succumbed to the bears on Thursday, the heightened expectations of a Santa rally elevating the Dow Jones to the golden 20000 mark could re-attract risk-hungry investors. With Christmas this weekend and New Year’s just over a week away, global stocks may meander between losses and gains as investors strategize for 2017.

Dollar ends year as King

Unstoppable may be the best way to describe the Greenback’s performance since November with the currency on track to finishing the year near 14-year highs as a winner. The bullish cocktail of repeatedly positive US domestic data and heightened hopes of an improvement in economic growth have magnetized investors to the Dollar. With speculations mounting over the Fed raising US rates further in 2017, the Dollar could remain king. As the year comes to an end, price action may dictate where the Dollar trades with the current trajectory pointing to the upside. A technical breakout back above 103.50 could spark an appreciation towards 105.00.

Sterling sulks into New Year  

Uncertainty and Sterling have become great friends since the vote to leave the European Union back in June with the currency on track to conclude the year as the worst performing developed currency amongst majors. The ongoing Brexit woes have dished uncertainty and anxiety consequently gripping the Sterling with bears attacking prices at any given opportunity. The Dollar’s rise to fame from the prospects of higher US rates has enforced downside pressures on the GBPUSD with discussions on the rise of another parity dream. If Pound bulls are lucky the GBPUSD could conclude the year around 1.2200, but if sellers attack incessantly then 1.2100 could be an end of year possibility.

Currency spotlight – EURUSD

The divergence in monetary policy between the ECB and Fed should provide ample encouragement for bearish investors to install repeated rounds of selling on the EURUSD in the New Year. From a technical standpoint, there have been consistently lower lows and lower highs on the EURUSD while the MACD trades to the downside. Sellers could utilize the 1.0500 dynamic resistance to drag the EURUSD to fresh 14 year lows below 1.0350.

Commodity spotlight – WTI Crude

WTI Crude failed to maintain gains this week following the unexpected build in US crude stockpiles which revived the oversupply concerns. Oil price sensitivity could be a recurrent theme in the New Year as markets carefully observe the developments with OPEC and Non-OPEC in cutting crude oil production by roughly 1.76 million barrels per day. With some anxieties still lingering over the compliance side of the unexpected cut agreement, oil could end up extremely volatile with losses expected if production fails to decline. A strengthening Dollar could also entice sellers to attack oil in the New Year with technical traders observing how prices react to the $52 level.

Commodity spotlight – Gold

Gold was punished this quarter by a strengthening Dollar while rising prospects of higher US rates in the New Year repelled attraction towards the metal. The Greenbacks dominance has turned the yellow metals trajectory to the downside with steeper depreciations to be the new norm when the Federal Reserve raises US interest rates in 2017. Although risk aversion from the ongoing Brexit woes and events in Europe may elevate Gold, sellers could exploit the technical bounces to drag prices much lower. This zero yielding metal remains under serious pressure on the daily timeframe and a breakdown below $1120 could open a path towards $1100.

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