Markets brace ahead of OPEC & ECB

2 June, 2016

Financial markets may experience untold levels of volatility during trading this Thursday as the explosive combination of critical data releases encourages anxious investors to systematically offload and reload positions. This volatility can be displayed in global stocks that have frantically swung between losses and gains this week with prices potentially respecting this pattern as the OPEC meeting weighs on risk appetite. European equities were left depressed during trading on Wednesday and could be set for further declines following the mounting fears over the immeasurable impacts of a Brexit to the Eurozone. Although Wall Street clawed back previous losses after the positive ISM Manufacturing PMI boosted expectations of a US rate hike in Q2, bulls could be cut short if Friday’s NFP fails to meet expectations. While the short term gains in the stock markets could be commended by the bulls, prices may be destined to decline if ECB doves and an OPEC failure materialize before the end of today.

Brexit fears trigger volatility

Sterling volatility skyrocketed to gravity defying levels during trading this week following the stealth attack from the Brexit poll that rekindled fears over the UK leaving the European Union. Although Manufacturing data exceeded expectations and slightly alleviated concerns over the state of the UK economy, this was easily overshadowed by the Brexit fears which encouraged bears to pounce. Sentiment remains bearish towards the pound and with volatility set to intensify as financial heavyweights discuss the pros/cons of a Brexit, investor attraction could be haunted further. Bank of England Mark Carney will be speaking today and may likely repeat his “Bremain” mantra which could compound to the volatility. Although the results and impacts of E.U referendum vote remain uncertain, it is certain that the uncertainty leaves investors anxious, consequently punishing the pound further.

The GBPUSD crashed into 1.440 during trading on Wednesday as a mixture of Dollar resurgence and Sterling weakness provided a foundation for bearish investors to install a round of selling. This pair is in the process of turning heavily bearish and a solid breakdown below 1.440 could open a path towards 1.410 and potentially lower. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support at 1.450 could transform into a dynamic resistance that should encourage the decline back below 1.410.

ECB meeting in focus

Focus may be directed towards Thursday’s ECB meeting and although it is widely expected that the central bank remains on hold, investors may seek clarity on how the bank reacts if inflation continues to falter. For an extended period falling commodity prices and external developments have exposed the Eurozone to major downside risks while overall domestic economic data still suggests weakness. Mario Draghi may reiterate his dovish rhetoric in an effort to talk down the value of the Euro with speculations of the ECB purchasing cooperate bonds providing a foundation for sellers to attack. With the Brexit woes and elevated Fed rate hike expectations dominating the markets, the ECB could be on standby before taking any action.

Although the EURUSD experienced a technical bounce from 1.1100 during trading this week, prices remain bearish and could be set to decline further if ECB doves take center stage this week. Even if ECB doves fail to make an appearance, the resurgence in Dollar strength could ensure the EURUSD remains buoyed moving forwards. From a technical standpoint, this pair is bearish and previous support at 1.1250 could become a dynamic resistance for a deeper decline towards 1.1100 and potentially lower.

Anxiety ahead of OPEC meeting

A sense of anxiety lingers across the board ahead of the heavily anticipated OPEC meeting on Thursday, which most widely expect may end without a production freeze deal struck. Although the short term disruptions from oil export nations have offered a platform for bullish investors to send oil prices higher, this unstable foundation may be set to tumble if investors are left empty handed from another unsuccessful OPEC meeting. It should be kept in mind that Iran has rejected suggestions of an oil output cap with the nation embarked on an ongoing quest to reclaim lost market share. With concerns over the excessive oversupply still present and fears lingering that Saudi Arabia could pump more into the markets, oil prices may be set for another decline below the $50 cap.

From a technical standpoint, a breakdown below $47.40 could open a path towards $45.

Commodity spotlight – Gold

Gold has faced punishment from a resurgence in Dollar strength while the renewed expectations over the Fed raising US rates in Q2 has heavily weathered the metal’s allure. This yellow metal has sunk considerably and could be poised to breakdown below $1200 if Friday’s NFP exceeds expectations. Although there are still concerns over the state of the global economy which has renewed appetite for safe-haven assets, the painful combination of Dollar appreciation and the Fed taking action have haunted investor attraction towards Gold. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below $1200 could open a path towards $1160.


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