Explosive levels of volatility rattled the financial markets during trading on Wednesday following the shockingly hawkish FOMC meeting minutes which renewed expectations over the Federal Reserve raising US rates in Q2. It was even more surprising when the minutes displayed that most participants in the committee deemed that if domestic data from the States was consistent with a revival in economic growth, then the prerequisites of a June/July hike could be fulfilled.
Although data in the States has picked up, with the resurgence in retails sales and rise in inflation providing additional ammunition for the Dollar bulls to attack, concerns over April’s dismal NFP report continue to linger on. While the Fed could be commended on their ability to boost speculations of another US rate hike in Q2, the bitter fundamentals and ongoing fears over the unstable economic landscape should sabotage any efforts taken by the central bank to act.
The Dollar Index surged with ferocity with prices lurching towards 95.00 as expectations heightened over the Fed raising US rates in Q2. This Index was previously bearish on the daily timeframe but the breakout above 95.00 may have opened a path for the bulls. From a technical standpoint, prices are trading firmly above the daily 20 SMA while the MACD has also crossed to the upside. A decisive breakout and daily close above 95.00 could open a path towards 96.00.
Sterling bulls rampage
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The Sterling appreciated uncontrollably during trading on Wednesday with the GBPUSD surging to 2 week highs at 1.4650 following the positive employment report that alleviated concerns over a slowdown in UK economic momentum. The sharp appreciation of the pound was complimented with results from recent polls that displayed the “Bremain” campaign taking the lead, and bullish investors exploited this opportunity to install another heavy round of buying. Although the Sterling has risen considerably, sentiment remains bearish towards this currency and this relief rally could offer an opportunity for bearish investors to attack prices lower. It should be kept in mind that expectations continue to fade over the BoE raising UK rates while ongoing global woes have exposed the nation to downside risks. Uncertainty is rife ahead of the E.U referendum and this should haunt investor attraction towards the Sterling, consequently encouraging bears to take action.
WTI Crude struggles above $47
WTI Crude was flung onto a wild roller coaster ride during trading this week following the catalytic combination of a rise in US crude inventories, resurgence in Dollar strength and rising output from Iran and Europe that left investors anxious. Although oil prices managed to breach above $48, the foundation behind the price rise was unstable and this could only spell problems for WTI bulls. The abrupt supply disruptions from major oil export nations such as Nigeria, Venezuela and Canada have inflated expectations that production could be decreasing but this does not change the recurrent oversupply concerns. WTI crude looks exhausted and a breakdown below $46.50 could open a path lower towards $44.00.
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From a technical standpoint, this commodity is unquestionably bullish on the daily timeframe as prices are trading above the daily 20 SMA while the MACD has also crossed to the upside. The fundamentals are strong in this scenario and this should encourage bearish investors to send prices back below the daily 20 SMA. The first barrier bears need to breach is the previous $46.50 resistance that may act as a tough support.
Commodity spotlight – Gold
Gold bulls faltered during trading on Wednesday as an unwelcoming combination of Dollar strength and renewed expectations over the Fed raising US rates rapidly eroded investor attraction towards the zero yielding metal. For an extended period Gold prices have been dictated by US rate rise expectations and with optimism renewed over the Fed taking action, prices could be left depressed moving forward. While the tough tug of war between bulls and bears may cause Gold to display erratic movements, a breakdown below $1250 could seal the deal for the bears. Although risk aversion may send investors to Gold, the renewed hopes that US rates could actually be raised may offer a foundation for bearish to install a heavy round of selling.
From a technical standpoint, a breakdown below $1250 could trigger a deeper decline towards $1225.
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