It is
certainly shaping up to be a painful week for the Greenback as lingering trade
war fears and political uncertainty in Washington weigh heavily on the
currency. If the Dollar continues to weaken this week, emerging market
currencies could receive further support, with the Naira falling to the
category.
Risk appetite
fizzles on Syria tensions
A
touch of risk aversion crept into financial markets on Wednesday, as the sense
of relief over easing U.S-China trade tensions was overshadowed by the rising
geopolitical risk surrounding Syria.
Asian
stocks closed mostly mixed due to market caution, with European equities
sinking lower as investors adopted a guarded approach. Although Wall Street
ended higher on Tuesday as trade fears eased, geopolitical tensions could
pressure U.S equity bulls this afternoon.
The
wild movements witnessed across global equity markets in recent weeks continue
to highlight how fragile market sentiment remains amid the ongoing U.S-China
trade developments. Although conciliatory remarks from President Xi Jinping
have soothed concerns over a global trade war, will this be enough to support
equity bulls in the long term? Stock markets still remain vulnerable to
downside losses, especially if escalating tensions in Syria prompt investors to
scatter away from riskier assets to safe-haven investments.
Sterling
supported by Dollar weakness
Sterling
surrendered some gains but remained firm on Wednesday, after British
manufacturing output fell unexpectedly in February.
The
U.K’s manufacturing output fell 0.2%, its first drop since March 2017. Today’s
soft economic data could fuel concerns that economic growth cooled in the first
quarter of 2018. However, Sterling is likely to remain supported by ongoing
Dollar weakness. Market expectations over the Bank of England raising U.K
interest rates in May remain high, while a vulnerable Dollar is likely to
continue supporting the GBPUSD’s upside.
Focusing
purely on the technical picture, the GBPUSD is turning increasingly bullish on
the daily charts. Prices are trading above the 50 Simple Moving Average while
the MACD has crossed to the upside. Bulls could attack the 1.4230 level, as
long as prices remain above 1.4100.
Commodity
spotlight – WTI Oil
Escalating
tensions in the Middle East have stimulated concerns over potential supply
disruptions; this is likely the main culprit behind oil’s recent aggressive
appreciation.
While
oil is likely to remain supported by geopolitical risk and a vulnerable U.S
Dollar for the moment, soaring U.S Shale production has the ability to cap
upside gains.
The fundamentals
behind oil are likely to remain shaky in the longer-term as increasing U.S
output complicates OPEC’s efforts to prop prices higher and rebalance markets.
Taking a look at the technical picture, WTI Crude has scope to reach $68.00 if
bulls can break above $66.50. A scenario where prices are unable to breach the
$66.50 resistance level could encourage a decline back towards $64.00.
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