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Sterling bulls lean on false lifeline

Sterling bulls lean on false lifeline
April 19
11:06 2016

Stock markets staged a miraculous rebound during trading on Tuesday following the abrupt appreciation in oil prices that renewed risk appetite and boosted some confidence towards the global economy. Asian equities were injected with vigour, with major stocks in Asia venturing into the green territory as the resurgence of risk appetite somewhat weakened demand for the safe-haven Japanese Yen.

In Europe, losses were clawed back as investors pondered on the likelihood of a potential OPEC freeze deal in the June meeting, and with America also concluding positive in Monday’s session, stock market rallies may be the short term theme. While these gains are impressive, investors should keep in mind that oil prices have dictated the movements in global stocks, and with the commodity poised to decline as expectations deteriorate over a solution to the supply glut, stocks could be exposed to further punishment.

Sterling rises ahead of Carney

Sterling bulls displayed a remarkable recovery against most currencies during trading on Monday by exploiting the window of confusion which the Doha meeting debacle opened onto the markets. Regardless of these gains, sentiment remains overwhelmingly bearish towards the Sterling and with the intensifying Brexit fears haunting investor attraction towards the currency, further declines in prices may be pending in the future. While external forces ensure the Sterling remains depressed, domestic data from the UK continues to follow a negative path which simply provides a compelling reason as to why the Bank of England may keep rates unchanged in 2016. BoE Mark Carney will be testifying before the Lords Economic Affairs Committee today and may face a barrage of questions relating to the intricate Brexit topic, and if a dovish hint is detected then the Sterling could tumble across the board.

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The GBPUSD has surged above 1.4300 and this has nothing to do with an improved sentiment towards the Sterling, but a moment of confusion that has provided the currency a lifeline to lean on. With the Sterling fundamentally bearish it may only be a matter of time until the technicals follow. The current upsurge could be a bounce that may transform into a relief rally for sellers to send prices lower back towards 1.4200.

Currency pair spotlight – EURUSD

The EURUSD lurched higher this trading week as a mixture of risk aversion from the paradigm shift coupled with a weakening Dollar encouraged bullish investors to exploit the potentially new higher low at 1.1250. With the ECB press conference looming, expectations are mounting that the central bank may unleash further stimulus measures in a bid to revive Eurozone growth while also weakening the EUR. It should be kept in mind that for an extended period the ECB has been in a bout with falling inflation while external pressure continues to expose the nation to downside risks. The short period of Dollar weakness has helped the technical setup and with the possibility of prices trading towards 1.140, bullish investors have been provided an opportunity to install another round of buying momentum. From a technical standpoint, prices are trading back towards the daily 20 SMA while the MACD has crossed to the downside. A breakout above 1.1300 could invite a further incline towards 1.140.

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Commodity spotlight – Gold

Gold prices surged during trading on Tuesday as the lingering feeling of disappointment from the Doha meeting bred uncertainty which consequently encouraged investors to search for safe haven assets such as Gold. This yellow metal remains fundamentally bullish and the elevated concerns over slowing global growth coupled with ongoing woes should create a platform for bullish investors to install another round of buying. The name of the game is persistent Dollar weakness which should keep Gold prices buoyed with targets stretching towards $1250.From a technical standpoint, prices are trading above the daily 20 SMA while the MACD has crossed to the upside. Potential resistance at $1240 could transform into a dynamic support for a drive up towards $1250.

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