Post-Brexit jitters trigger flight to safety

Stock markets were placed on a messy roller coaster ride during trading this week as the ongoing Brexit anxieties and persistent concerns over the global economy weighed on investor sentiment.

Asian markets were pressured with most Asian stocks displaying exhaustion following the Yen’s resurgence which dragged the Nikkei lower. In Europe, stocks were elevated by rising oil prices, but could be poised to slide down a slippery slope when the renewed risk aversion from the ongoing global turmoil thoroughly haunts investor attraction to riskier assets.

Although Wall Street displayed an impressive rebound following the firm US ISM Non-Manufacturing PMI data, American stocks may be left vulnerable to more losses if the relief rally encourages risk averse investors to install another heavy round of selling. With the persistent uncertainty becoming a recurrent theme in the financial markets, the appetite for riskier assets could continue to decline as investors make a flight to safety.

Sterling under pressure

The Sterling took another hammering this week with the GBPUSD plummeting to fresh 31 year lows below 1.28 as the horrible mixture of persistent Brexit fears, tepid domestic data and expectations over a future UK rate cute encouraged bears to attack. Uncertainty is becoming a dominant theme post-Brexit consequently reducing attraction for the Sterling, while ongoing concerns of a potential Brexit fueled recession has obstructed any real recovery in the Pound’s value.

Sentiment is clearly bearish towards the pound and further declines could be expected in the future as the overwhelming fundamentals provide a foundation to install a heavy round of selling.

From a technical standpoint, the GBPUSD bears have exceeded expectations and could probably drag prices lower as the Brexit jitters encourages investors to offload the Sterling. The candlesticks are trading below the daily 20 SMA and the MACD has crossed to the downside. Previous support at 1.3200 could act as a dynamic resistance that encourages a further decline towards 1.2800.

US ADP NFP in focus

Investors may direct their attention towards the US ADP report on Thursday which could provide additional clarity on the health of the US economy. The Dollar has been under pressure as the ongoing Brexit anxieties continue to reduce optimism over the Federal Reserve raising US rates in 2016.

Although US data has improved as of late, global instabilities and the persistent uncertainties continue to expose the US economy to downside risks consequently making it difficult for the Fed to take any action. With expectations periodically diminishing over any US rate hikes in 2016, the Dollar Index could be left vulnerable to further losses. A disappointing ADP NFP may provide bears the inspiration needed to send the Dollar Index back below 96.00.

Gold bulls unleashed

Gold bulls were unchained during trading on Thursday as the potent mixture of persistent Brexit anxieties, fading US rate hike expectations and ongoing concerns over the global economy attracted investors to safe-haven assets. This yellow metal has enjoyed an extended incline this week and could be propelled higher when the Dollar starts to weaken.

Expectations are already low over the Fed taking action in 2016 and a disappointing NFP on Friday could be the final ingredient needed to send Gold prices to fresh two year highs. From a technical standpoint, prices are trading above the daily 20 SMA while the MACD has crossed to the upside. The breakout above $1350 could open a path towards $1385 and potentially higher.

Lukman Otunuga is a research analyst at FXTM.