Sterling was volatile on Tuesday, with prices oscillating between losses and gains after markets digested the UK’s steady 2.3% inflation figure for March, which was the highest level since September 2013.
The ongoing currency weakness created by Brexit, coupled with rising oil prices has elevated inflation above the Bank of England’s 2% target, with speculation mounting over CPI following its positive trajectory this quarter. Although the immediate market reaction to March’s headline CPI reading was noticeably bullish, gains may be relinquished when participants start to re-evaluate the impact it may have on the UK economy. With inflation still above average earning there is a threat of consumer spending taking a hit, which could spark concerns over the longevity of the UK’s consumer-fuelled economic growth.
Focusing on the technical outlook, Sterling remains gripped by Brexit woes, with prices pressured on the daily charts. The candlesticks are trading below the daily 20 Simple Moving Averages, while the MACD is in the early stages of crossing to the downside. Weakness below 1.2400 could be the first signs of a steeper decline, with a breakdown below 1.2370 opening a path towards 1.2300.
Euro pressured by political uncertainty
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The growing unease and anxiety ahead of the French presidential elections in a few weeks have exposed the Euro to downside risks. Recent polls showing a four-way battle in claiming the French presidency, with Emmanuel Macron and Marine Le Pen on track to winning the first round, have created jitters. With the growing threat of Eurosceptic parties destabilizing the Eurozone’s unity weighing heavily on sentiment, the Euro may be in store for further punishment. From a technical standpoint, the EURUSD is bearish on the daily charts. Prices are trading below the daily 20 SMA, while the MACD has crossed to the downside. Weakness below 1.0600 could encourage a further decline lower towards 1.0500.
Global stocks subdued by geopolitical tensions
The horrible combination of geopolitical risks and political uncertainty has soured appetite for riskier assets, with investors sprinting to safe-haven investments. Global stocks were vulnerable to losses during trading on Tuesday amid the heightened geopolitical tensions, with the lack of appetite for riskier assets pressuring Asian and European markets. The bearish contagion from Europe could contaminate Wall Street this afternoon, consequently limiting gains as investors turn to Gold for safety.
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Commodity spotlight – WTI Oil
WTI Crude was elevated to a fresh five-week high at $53.20 during trading on Tuesday, after the shutdown at Libya’s largest oilfield over the weekend eased some oversupply fears. The geopolitical uncertainty in Syria sparked further speculations of a threat to supply complimented the upsurge in oil prices. Although the incredible rebound in oil has somewhat turned prices bullish on the daily charts, the lingering oversupply concerns may cap upside gains in the medium to longer term. From a technical standpoint, for the upside to continue towards $55, a solid breakout and daily close above $53 will be needed.
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