Investors turn to Yellen amid market turmoil

The heightened sense of pessimism towards the global economy has intensified the dosage of risk aversion, consequently leaving global stocks vulnerable to steeper losses this trading week. European equities received punishment during trading on Tuesday with the FTSE100 plunging to levels not seen since 2012 as anxious investors fluttered away from riskier assets to safe havens.

This bearish domino effect trickled into the American equity division with US stocks remaining very cautious and concluding in the red amid the elevated fears over the state of the financial markets. Although most Asian markets remain closed due to the lunar New Year celebration, yesterday’s hefty -5.4% decline in the Nikkei continues to weigh heavily on Asian equities with losses extended to another -2.6%on Wednesday. With risk aversion growing amid the ongoing market turmoil, investors may be encouraged systematically offload riskier assets and this may translate to more pain for the global stock markets.

FSTE100 breaches 5700

The compounding anxieties over the health of the global economy and incessant declines in oil prices have irrefutably soured investor risk appetite consequently leaving the FTSE100 exposed to noticeably steep declines. Risk aversion remains rife and with little appetite for riskier assets the FTSE100 may be set to sink further as investors flock to safe haven assets. From a technical standpoint this index is heavily bearish and a solid breakdown below 5600 should encourage another decline towards 5500.

Focus on Janet Yellen

Janet Yellen will appear at Congress today where she may educate market participants on how the Fed plans to follow its pledge to raise US rates on four occasions in such unstable economic conditions. The global economic landscape has changed for the worst since the rate rise decision in December, while data from the States continues to follow a negative trajectory pointing to a potential economic slowdown. Sentiment towards the US economy has been torn in many directions, and if Yellen suggests that there is the possibility of the Fed backtracking on raising rates amid the current financial turmoil, then Dollar weakness may take center stage in the global currency markets.

Dollar Index under pressure

The Dollar Index dipped to fresh three and a half month lows at 95.66 during trading on Tuesday as expectations of the Fed raising US rates in March or at any point in 2016 rapidly diminished. This Index is technically bearish on the daily timeframe and if Yellen shows weakness or a hint of doves in her testimony on Wednesday, then bears may install another round of selling momentum which should drag prices towards 95.00. From a technical standpoint prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. Previous support around 97.50 may act as a dynamic resistance which should encourage a further decline towards 95.00 and potentially lower.

GBPUSD finds support above 1.44

This re-established wave of risk aversion continues to punish the Sterling, while fading expectations over the Bank of England raising UK rates in 2016 has left the currency heavily depressed. Sentiment towards the pound is bearish and the ongoing concerns towards the possible Brexit vote have obstructed any solid recovery in value. Elevated fears towards the state of the global economy keep exposing the United Kingdom to some downside risks and tepid domestic data simply adds to Sterling’s woes. UK manufacturing data has followed a negative path and if Wednesday’s report paints a similar soft outlook, then Sterling bears may receive encouragement to send the GBPUSD back below the stubborn 1.4400 support.

From a technical standpoint, the GBPUSD is bearish on the daily timeframe as long as prices can keep below the 1.4600 resistance. Although prices are above the daily 20 SMA, the MACD still trades deep into the downside. A solid breakdown below 1.440 may encourage a further decline towards 1.420 and potentially lower. 

Commodity Spotlight – WTI Oil

WTI Oil dipped below $28 during trading on Tuesday as ongoing concerns around the unrelenting oversupply of oil and heightened fears of a capacity overload to store the surplus of oil encouraged sellers to aggressively attack prices. Fears over the oversupply are already at frightening levels and a further build up in the crude oil inventory report today may trigger another heavy selloff in WTI as investor attraction diminishes. In regards to OPEC it seems that it has lost control of this painful situation as even the emergency meeting between Saudi Arabia and Venezuela only encouraged bearish investors to pile on their shorts. This commodity is under immense pressure and the solid daily close below $30 should invite another decline towards $25 and potentially lower.

From a technical standpoint, WTI has respected the bearish channel and trades below both the 20 and 50 SMA. The MACD has crossed to the downside and a solid breakdown below $30 may trigger a selloff towards $25.

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