Fed caution tests global confidence

Confidence in the global economy received another dent on Wednesday night following the Federal Reserve’s cautious tone towards the current global woes which rapidly erased any optimism that US rates could be increased four times this year. The economic landscape has morphed dramatically from the December meeting offering nothing but pain, and this has forced the previously hawkish committee to take a few steps back and re-evaluate their stance. Although the Fed decided to be mindful in the statement by reiterating a similar language to December in an attempt to mitigate further turmoil in the financial markets, critical changes highlighting slowing economic growth and low inflation levels have made the idea a US rate increase in March difficult to imagine.

While unfavorable economic conditions and heightened anxieties over the persistent declines in oil prices have reduced the likelihood of four US rate hikes this year, there are still up to seven trading weeks and 2 non-farm payrolls until the March meeting. Even if data from the States remains positive in this seven-week window, the ongoing concerns over China , emerging market weakness and overall low confidence towards the global economy which has punished stock markets may be a barrier for the Fed to take any action whatsoever. Although the Fed may be praised for the way it presented the FOMC statement on Wednesday, the question of if it was the right move to raise US rates in the first place continues to reverberate in the background.

The market reaction was slightly muted as it was widely expected that rates would be kept unchanged, while the cautionary stance from the Fed mitigated any turbulent moves in the currency markets. Once the dust had settled, American equities were left under pressure with the S&P 500 closing negative as the recurrent concerns over falling oil prices and risk aversion encouraged investors to offload from riskier assets. While Asian equities started Thursday mixed, the anxieties over China capital outflows ahead of the Lunar New Year continues to spook the markets and this should translate to more losses seen in the near term. European stocks managed to claw back some losses on Wednesday, but this relief rally may offer an opportunity for bearish investors as the fundamental which have been pulling stocks lower remain intact.

WTI consolidates below $33

The rising optimism over the possibility that Russia may cooperate with OPEC in a bid to slash the excessive oversupply in the markets offered another false lifeline to WTI bulls, who used this opportunity to take prices to fresh daily highs at $32.80 during trading on Wednesday. While speculation may mount on the rumour of potential production cut, the fundamentals which have been the unrelenting oversupply in the saturated markets have not changed. An appreciating Dollar adds to oils woes and ongoing anxieties over slowing global economic growth has not helped sentiment towards oil. This commodity remains bearish and the relief rally may offer an opportunity for sellers to attack prices once again.

From a technical standpoint, prices are bearish and currently respect the daily bear channel. The candlesticks are marginally below the daily 20 SMA while the MACD has also crossed to the downside. If $33 acts as a strong resistance the prices may trade back down towards $30 and potentially lower.

Sterling extends losses ahead of GDP report

Sentiment towards the Sterling remains very weak and the risk-off trading environment continues to the leave the single currency vulnerable, while rapidly fading expectations around the Bank of England raising UK rates in the near term has encouraged sellers to attack the GBPUSD. Ongoing concerns towards the domestic wage growth and tepid inflation levels have renewed fears over the potential slowdown in economic momentum in the UK economy and this has sabotaged any recovery in the value of the pound. The GDP report for Q4 will be released today and if this points to a slowdown then Sterling bears may receive further encouragement to send the GBPUSD towards 1.400 in the medium term.

The GBPUSD is heavily bearish on the daily timeframe as there have been consistently lower lows and lower highs. Prices are currently trading below the daily 20 SMA while the MACD has also crossed to the downside. If the potential new lower high at $1.4350 defends, then prices may decline back down towards 1.4150.

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