WTI Crude collapsed during trading last week following the unexpected statement from Saudi Arabia stating that any output deals would be dependent on Iran’s participation, which consequently crumbled expectations of a successful meeting in Doha. This paradox of a scenario comes at a time when Iran is engaged in a self-fulfilling quest to boost its output by 4 mbpd in a market already oversupplied by 2mbpd.
The cocktail of events in Q1 almost make it seem like OPEC had no real intention in curbing output, but instead exploited the explosive levels of volatility to generate speculative boosts in oil prices. Sentiment remains bearish towards WTI and with elevated concerns over the excessive oversupply haunting investor attraction, any recovery in prices may have been sabotaged.
Investors should keep in mind that the firm fundamentals of an unrelenting oversupply have been the driving force which has kept prices depressed while concerns that demand may be waning continues to empower the bears. The over-extended rally that took prices above $40 should provide a foundation for bearish investors to attack with targets pointing towards $35 and potentially lower. From a technical standpoint, WTI is bearish as there have been consistently lower lows and lower highs. Prices are trading below the daily 20 SMA and the breakdown below $38 has opened a path towards $35.
Dollar bears shrug NFP
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Sentiment towards the US economy received a welcome boost during trading on Friday following the stable NFP figure of 215k which displayed signs of US labor market resilience in a period of diminishing global growth. Although this was the case, Dollar bears were unfazed which could have been the result of Janet Yellen’s dovish stance last week that faded any expectations of US rates being hiked anytime soon. Sentiment remains bearish towards the Dollar and the eroding expectations over the Fed raising US rates in Q2 could encourage sellers to attack the Dollar further. It must be understood that ongoing global woes that have exposed the US economy to major downside risks may dictate if the Fed respects its pledge to raise US rates twice this year.
The Dollar Index is bearish on the daily timeframe and with Dollar weakness potentially becoming a major theme in the currency markets; the index may be poised for further declines. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support at 95.50 may transform into a dynamic resistance which could trigger a further decline towards 94.00.
Sterling pressured ahead of construction PMI
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The Sterling has been victim to an incessant selloff from the mounting Brexit fears while risk aversion continues to sour investor appetite towards the currency. Sentiment remains bearish towards the Sterling and more selloffs may be expected following the latest polls displaying 43% of people backing a Brexit. While the mounting uncertainty over the possible impacts of a Brexit to the UK economy is ensuring that the pound remains depressed, domestic data which has pointed to further weakness in the UK economy simply provides the BoE a compelling reason to leave UK interest rates unchanged. Investors may direct their attention towards the UK Construction PMI today, and if this fails to hit expectations then the GBPUSD may be offered a clear path towards 1.4200.
The GBPUSD remains bearish and may decline further as the week progress if Sterling weakness intensifies. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below 1.42 should open a path towards 1.40 and potentially lower.
Commodity spotlight – Gold
Gold prices were placed on a roller coaster ride last week following the positive NFP report which offered the Dollar bulls a false line amid fading expectations of US rate hikes. The initial surge in Dollar strength sent Gold prices to weekly lows before the markets digested that the current NFP figure had a minimum impact on near term Fed rate hike decisions. Gold is still fundamentally bullish and should continue to appreciate as Dollar vulnerability becomes the main theme in the global markets. The lingering concerns over slowing global growth and ongoing China woes may provide a foundation for buyers to install another round of buying in the medium term. From a technical standpoint, a breakout above $1235 may open a path towards $1250. The $1200 support remains crucial for bulls to keep in control.
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