BY Lukman Otunuga
A wave of jitters swept across the global markets during trading on Thursday as ongoing concerns over the slowing global growth coupled with central bank caution soured investor risk appetite. European markets swiftly surrendered previous gains, while the FTSE100 ventured back in the red territory following the Bank of England’s gloomy comments towards the Brexit uncertainty, which heightened fears about the health of the UK economy.
Anxiety from Europe created a bearish domino that wasted no time in infecting Wall Street which was already engaged in a losing battle with faltering US rate hike expectations. Although Asian markets displayed some resilience earlier in the week, further losses could be expected as a mixture of risk aversion and a strong Yen ensure that Asian equities remain depressed. With the fundamentals firmly pointing to the downside, sellers have repeated exploited the relief rallies to send most major stocks lower. While once upon a time oil prices may have dictated stock market movements, the fears over slowing global growth have reached new highs consequently creating a path for steeper losses despite the resurgence in oil prices.
Super Thursday super disappointment
The bearish sentiment towards the Sterling descended to new depths during trading on Thursday following the Bank of England’s cautionary tone towards the immeasurable impacts a Brexit may have on the UK economy. Bearish investors were offered a foundation to send the Sterling lower when the central bank slashed inflation forecasts while BoE Mark Carney’s comments continued to heighten fears over a potential technical recession following from a Brexit. Thursday’s disappointment combines with the painful string of negative domestic releases that have haunted investor attraction towards the Sterling, and with expectations fading over the BoE raising UK rates anytime soon, more declines in the currency are inevitable. There could be a likelihood that with the inflationary woes and Brexit concerns adding to the horrible cocktail, the central bank may be forced to slash UK interest rates.
The GBPUSD is bearish on the daily timeframe and a breakdown below 1.440 could open a path towards 1.410. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD also trades to the downside. A decisive break below 1.440 could transform it into a resistance that may invite sellers to drag prices towards 1.410. Bears remain in control as the candlesticks can keep below 1.450.
US retail sales in focus
Investors may direct their attention towards Friday’s US retail sales report that has repeatedly missed expectations in the past. Retail sales are a key gauge that could provide clarity on the health of the US economy as consumption is a noticeable portion of GDP, and if today fails to meet expectations then the Dollar could be left vulnerable to further losses. It must be kept in mind that expectations are already extremely low towards the Fed raising US rates in Q2 while external developments continue to leave the nation exposed to downside risks. Although Dollar bulls have shown face this trading week, this noticeable signs of exhaustion could offer bears an opportunity to pounce. While the Dollar Index currently balances above 94.00, a breakdown below this key level could open a path back down towards 92.50.
WTI crude smashes into 46.50
WTI Crude surged with ferocity as prices lurched above $46.50 during trading on Thursday following the shocking decline in US oil stocks that boosted optimism that supply could be decreasing. The unexpected decline in stockpiles combined with the backdrop of supply disruptions, which have slightly eroded some of the excessive global oversupply woes. Although these short-term events continue to provide WTI bulls a lifeline, the solid fundamentals of an excessive oversupply should overshadow these disruptions in the long term. Even if for argument’s sake the supply disruptions are extended, Iran remains on an unyielding quest to reclaim lost market share, while Saudi Arabia has discounted any production cut deals without Iran. This visible conflict of interest should be enough to offer bearish investors a solid foundation to send oil prices lower.
From a technical standpoint, WTI crude is unquestionably bullish on the daily timeframe as there have been consistently higher highs and higher lows. Prices are trading above the daily 20 SMA while the MACD also trades to the upside. Although a technical breakout above $46.50 may open a path towards $48.00, investors should remain alert as these speculative boosts in oil prices from heightened supply cut expectations have a weak foundation.
Commodity spotlight – Gold
Gold prices were placed on a chaotic rollercoaster ride this trading week as the mixture of Dollar resurgence, risk aversion and profit-taking triggered the metal to trade in an erratic fashion. Despite the erratic movements, Dollar bull failed to bully Gold back below the firm $1260 support with the metal firmly rebounding from the daily 20 SMA. This yellow metal remains fundamentally bullish and with expectations fading over the Fed raising US rates in Q2, prices could surge towards $1305. With ongoing Dollar weakness being a key catalyst that has kept Gold prices buoyed, a disappointment retail sales may trigger a heavy round of buying with gold surging towards $1285. From a technical standpoint, prices are trading above the daily 20 SMA while the MACD trades to the upside. If the daily 20 SMA defends, then Gold could rise towards $1285.
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