9 February, 2017
Stock markets were chaotic this week with most major arenas violently swinging between losses and gains due to the heightening political risks across the globe, escalating Trump developments and ongoing Brexit woes. Asian markets traded mixed on Wednesday as the Trump-off trading mood dented investor risk sentiment. With depressed oil prices potentially fuelling the risk aversion, European markets could come under renewed selling pressures in the short term. Wall Street remains gripped by the Trump uncertainty and the sensitivity in American stocks should be expected to rise as investors seek further clues on what policies US President Donald Trump may unravel this week. The threat of protectionist policies impacting global growth and overall political uncertainty eroding risk appetite could leave stock markets vulnerable to heavy losses in the medium to longer term.
Dollar remains Trumped
The Greenback staged an impressive rebound on Tuesday following hawkish comments from a US Federal Reserve official which reinforced expectations of a US interest rate hike in March. While the prospects of higher US rates may ensure the Dollar remains buoyed in the medium term, the erratic Trump policies coupled with concerns over protectionism impacting US growth could expose the Greenback to downside risks in the short term. It should be kept in mind that the driver behind the Dollar’s phenomenal gains was optimism over fiscal policies boosting US growth, and there is now a risk of the currency being sold incessantly if investors are left disappointed. Technical traders may observe how the Dollar Index trades within the daily bearish channel with a breakdown back below 100.00 encouraging a further decline lower towards 99.00.
Sterling dictated by Brexit woes
Sterling was extremely volatile this week as market participants reacted to signs of the UK government giving parliament a stronger say in the critical Brexit negotiations. It has become quite clear that Sterling remains dictated by the Brexit developments with price sensitivity set to heighten in the coming weeks as the article 50 invoke looms. The overall sentiment towards the Pound remains heavily bearish and uncertainty should provide a solid foundation for sellers to drag the Sterling/Dollar back towards 1.2350. From a technical standpoint, the GBPUSD currently resides in a wide range but a breakdown below the pivotal 1.2350 level could encourage a steeper selloff back towards 1.2050.
Commodity spotlight – WTI Oil
WTI Crude was exposed to further losses on Wednesday after the shocking increase in U.S fuel inventories and decline in Chinese demand revived concerns of the excessive oversupply in the global markets. The resurgence of U.S shale amid the rising oil could undermine the efforts of OPEC and Non-OPEC members in mitigating the global oversupply consequently leaving oil prices vulnerable. There is a threat of the OPEC production cut deal falling apart in the future if U.S shale continues to pump incessantly. Although oil prices were initially buoyed by the optimism over OPEC and Non-OPEC members achieving roughly 82% compliance with its production cut, the big elephant in the room known as U.S shale should limit upside gains. The breakdown below $52 on WTI could spark a further selloff lower towards $51.
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