Depressed Oil Dampens Risk Sentiment
Stock markets were pressured during late trading on Monday after the heavy depreciation in oil prices soured investor risk appetite. Asian shares closed mixed on Tuesday as the terrible mixture of depressed oil, renewed China concerns and Trump jitters prompted traders to adopt a cautious stance. In Europe, although Sterling’s Brexit induced weakness has propelled the FTSE100 to fresh record highs, the risk-off sentiment should punish other European equities. With anxiety slowly creeping back into the markets amid the uncertainty, short-term gains on Wall Street may be limited with the Dow 20,000 dream fading into the distance.
Oil under renewed pressure
The rising concerns of OPEC and non-OPEC members failing to fulfil their pledge to cutting oil production have exposed WTI crude to steep losses with the commodity tumbling towards $52 during trading on Monday. Seller’s received ample inspiration following reports of Iraq oil exports from the southern Basra ports reaching 3.51 million barrels a day in December while news of Iran crude tank exports surging simply intensified the selloff. With fears over U.S shale exploiting the explosive 20% rebound in oil arousing bears in the medium term, extreme upside gains should be capped.
The oil rally may be running out of steam with bulls desperately searching for opportunities to keep prices buoyed. With oil market sensitivity in the first quarter of 2017 still a dominant theme, severe weakness in oil prices should be expected if obstacles emerge from the proposed cut deal.
Currency spotlight – GBP/USD The endless Brexit woes have magnetised sellers this week with the GBP/USD sinking to fresh two-month lows around 1.2110 as of writing. Sterling remains imprisoned by the hard Brexit concerns while uncertainty motivates bears to attack ruthlessly at any given opportunity. While there continue to be talks of the EUR/USD parity, the GBP/USD parity could also become a reality if the Brexit turmoil pressures the Bank of England to adopt a dovish approach.
The bearish combination of sterling weakness amid the Brexit woes and dollar strength from the prospects of higher US rates has made the GBP/USD fundamentally bearish. Technical bearish traders could exploit the downside momentum to send the pair lower towards 1.2000. Commodity spotlight – Gold
Gold regained some of its safe-haven allure during trading on Monday as Trump jitters and Brexit woes encouraged investors to scatter away from riskier assets to safe-haven investments. A weakening dollar amid profit taking also attributed to gold’s impressive rebound which saw the metal edge above $1185 during trading on Tuesday. While the yellow metal may be set to appreciate further ahead of President-Elect Donald Trumps’ news conference on Wednesday, gains could be limited by rate hike expectations.
The current overextended technical bounce could provide a firm foundation for bears to install renewed rounds of selling on gold with targets pointing back towards $1160. A breakout above $1210 may suggest that bulls are back in town with the trajectory switching back to the upside on the daily charts.
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