Dollar retreats ahead of FOMC

A potent dose of anxiety from the steep decline in oil prices sent global stocks tumbling during trading on Monday with most major markets flung into red territory ahead of the heavily anticipated central bank meetings. Although European markets unexpectedly snapped their losing streak in Tuesday’s session, the short-term gains could be relinquished if diminishing oil prices punish mining stocks, which in turn could consequently sour risk appetite.

While there may be the likelihood that the gains from Europe seep into American markets, this could be short-term due to the mounting unease ahead of the FOMC statement on Wednesday. In Asia, stocks displayed signs of exhaustion with most equities concluding the session depressed from a combination of Yen appreciation coupled with fading expectations of further intervention from the People’s Bank of China (PBoC). With oil prices following a negative path and concerns of slowing global growth lingering in the background, stock markets have been left vulnerable to further declines in the near term.

Dollar under pressure

Sentiment towards the Dollar remains firmly bearish and with expectations rapidly fading over the Federal Reserve raising US rates in Q2, Dollar weakness continues to be the central theme in the global currency markets. Investors should keep in mind that for an extended period data in the States has followed a tepid path, while ongoing fears over the unstable global economy landscape have sabotaged the Fed’s efforts of raising US rates. While the focus may be directed towards the FOMC statement on Wednesday, expectations are high that this may be a non-event due to the lack of scheduled press conference, which has removed the opportunity for further probing of the Fed’s intentions.

Investors may turn their attention towards the barrage of economic releases from the United States that will be released on Tuesday, ranging from core durable goods to consumer confidence. If the reports display signs of further weakness in the US economy, Dollar bears may exploit this opportunity to attack the Dollar Index to lower levels. From a technical standpoint, the current bearish momentum could send the Dollar Index towards $94.00.

Euro searches for direction

Sentiment towards the Eurozone was dealt a sharp blow during trading on Monday following a decline in the German Ifo business confidence report which renewed concerns over the current health of the ailing economy. This comes at a time where the European economy continues to be trapped in a painful skirmish with falling inflation, while ongoing fears of a slowdown in economic momentum have constantly left the ECB under pressure to take more action. Although there continue to be fears of diminishing returns to monetary policy, it seems only a matter of time before further action is taken by the ECB in a fighting bid to revive growth while depreciating the Euro.

The EUR bears staged an incredible appearance during trading last week with the EURUSD tumbling below 1.1250 as expectations fluctuated over whether the European Central Bank would implement further stimulus measures in the future. This pair displays signs of sensitivity with bulls reclaiming control as long as prices can keep above 1.1250. Previous support at 1.1250 could encourage a sharp incline towards 1.1350. From a technical standpoint, prices are trading above the daily 20 SMA and the MACD trades to the upside. A bullish move back above 1.1250 could open a clear path towards 1.1350.

Gold under pressure

Gold has displayed some signs of consolidation ahead of this week’s heavily anticipated central bank decisions which are continuing to leave investors on the edge. Regardless of these periods of consolidation, this yellow remains fundamentally bullish and recurrent concerns over the state of the global economy coupled with falling oil prices could provide a foundation for another appreciation towards $1250. Although a weakening Dollar could provide an opportunity for bullish investors to attack prices once again, a breakout above $1240 may open a path back towards $1250 and potentially higher. From a technical standpoint, prices are trading marginally below the daily 20 SMA while the MACD still trades to the upside. Bulls continue to maintain some control as long as the $1210 support defends.

Commodity spotlight – WTI Oil

WTI bears were offered some encouragement this trading week as concerns elevated over Saudi Arabia and Iran battling for more market share in the future. These fears mounted to the anxieties around Saudi Arabia potentially expanding their oilfields in a bid to increasing production in a market already drowning in excessive oversupply. Sentiment remains bearish towards WTI crude and with expectations fading over a solution to the current supply glut, bearish investors could install another round of selling momentum that could take prices lower towards $40. From a technical standpoint, this commodity failed to close above the critical $44 level and could be set for a steeper decline towards $40 in the future with the correct catalyst.

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Otunuga is research analyst at FXTM