7 October, 2016
Stock markets were resilient on Thursday with most major arenas maintaining gains following oil’s resurgence which bolstered investor risk sentiment. Asian markets warmly welcomed oil’s rally with Japan’s Nikkei concluding +0.47% higher as risk-on punished the Yen. In Europe, equities were supported by Asia’s bullish momentum while Sterling’s vulnerability attempted to keep the FTSE100 buoyed. Wall Street received a welcome boost from Wednesday’s positive services data that uplifted sentiment towards the US economy and could trade higher on Thursday if the positivity rolls over. Global stocks may be open to further gains in the short term if the combination of rising oil prices and improving sentiment towards the US economy attracts investors to riskier assets.
The FTSE100 lurched to near all-time highs above 7000 points this month and this has nothing to do with an improving risk appetite but Sterling weakness from the persistent Brexit anxieties. Sterling’s vulnerability has boosted the income of FTSE100 companies who work abroad consequently driving their share prices higher as increased profits encourage a revaluation of their stocks. While the short term gains displayed in the FTSE100 have been undeniably impressive, it should be kept in mind that the ingredients for a bear market continue to linger in the background. Renewed Brexit anxieties have left investors on edge while lingering concerns over the future of the UK economy after the article 50 is invoked continues to weigh on sentiment. The FTSE100 may be in a period of extreme sensitivity and it could take an unexpected catalyst to trigger a heavy selloff.
ECB taper talks rattle Euro
Euro/Dollar was placed on a chaotic roller coaster ride this week following the ECB tapering rumours which provided a temporary foundation for bulls to install rounds of buying. The taper talks were swiftly discounted after investors reassessed the current health of the Eurozone which was nothing to be excited about. It should be kept in mind that inflation remains stagnant while growth subdued consequently failing to meet the conditions to taper. Although there is a growing weariness of the effectiveness of monetary policy to revive growth, it seems likely that the ECB continues its QE program until March 2017 before reviewing for further extensions.
From a technical standpoint, the EURUSD is struggling to keep above the 1.1200 support. A strong breakdown and daily close below this level could encourage a further decline lower towards 1.1100.
Dollar bulls take action
Dollar bulls received ample encouragement on Wednesday following the upbeat U.S services sector data which revived hopes over the Federal Reserve raising US interest rates in December. The greenback has been solid this month with the repeatedly beating domestic data solidifying expectations towards the Fed breaking its trend of central bank caution this year. Investors may direct their attention towards Thursday’s unemployment claims report which could add to the attributes needed for a rate rise if unemployment claims subside.
From a technical standpoint, the Dollar Index is bullish on the daily timeframe as prices are trading above the daily 20 SMA while the MACD has crossed to the upside. Previous resistance around 96.00 could transform into a dynamic support which opens a path higher towards 96.50.
Commodity spotlight – Gold
Gold remains under immense pressure as the toxic combination of Dollar strength and renewed US rate hike hopes entice bears to install repeated rounds of selling. The metal currently trades around three-month lows at $1262 and could trade lower this week if Friday’s NFP exceeds expectations. Although the bursts of risk aversion amid concerns over the global economy have somewhat protected the metal in the past, this new period of renewed optimism over the Fed pulling the trigger in December could ensure Gold remains depressed. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support around $1285 could transform into a dynamic resistance which opens a path lower towards $1250.
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