The phenomenal stock market rally has displayed some signs of exhaustion this week with investors on high alert ahead of the looming ECB meeting and NFP this Friday. Asian shares painted a mixed picture during early trading on Thursday following the bearish cues overnight from Wall Street and heavily depressed commodity prices. With participants adopting a caution trading stance ahead of the pending ECB this afternoon, European markets could be exposed to downside risks. The rising prospects of higher US rates have started to weigh on investor sentiment and such may translate to further downside pressures on Wall Street. While the resilience seen in the stock market rally may be commended, bears could make an appearance if investors start to lose patience over Trump’s pending fiscal stimulus plans.
ECB meeting in focus
Euro bears were unleashed during trading this week as political risk and uncertainty in Europe repelled investor attraction towards the currency. The ongoing developments in France coupled with fears of Eurosceptic parties gaining ground and destabilizing the unity of the Eurozone has left investors on edge. While the fundamentals of Europe have displayed signs of improvement with even inflation hitting the 2% target, the uncertainty revolving around the elections in France and Netherlands continue to limit gains on the Euro. Much attention will be directed towards the pending ECB conference today where the central bank is expected to keep monetary policy unchanged amid the political risk in Europe.
From a technical standpoint, the EURUSD remains bearish on the daily charts. A decisive breakdown and daily close below 1.0500 could encourage a further selloff lower towards 1.0350.
WTI under renewed selling pressure
WTI Crude was exposed to extreme losses during trading on Wednesday with prices tumbling towards $50 following reports of U.S crude inventories surging to record highs ultimately reviving the oversupply concerns. Although OPEC members have made a valiant effort to stabilizing the oil markets by cutting output, the growing threat of U.S shale ramping up production continues to encourage bears to install heavy rounds of selling on the commodity. While oil markets may be seen to be trapped in a fierce tug of war with OPEC and U.S Shale, a resurgent Dollar from the prospects of higher US interest should expose WTI to further downside shocks.
Currency spotlight – Dollar Index
The Dollar Index marched into gains during Wednesday’s trading session with prices breaking above 102.00 following the impressive ADP report that cemented expectations of a March US rate hike. Sentiment remains firmly bullish towards the Dollar and with US economic data following a positive trajectory, further upside could be expected in the short to medium term. Investors may direct their attention towards Friday’s NFP release which may be able to propel the Dollar Index higher if it follows the same positive pattern as the ADP release. From a technical standpoint, the Dollar Index is firmly bullish and previous resistance at 102.00 could transform into a dynamic support which may encourage a further incline towards 102.50.