Global stocks were pressured during Friday’s trading session, as scepticism over the sustainability of the Trump-fuelled market rally and a sense of caution ahead of Yellen’s speech kept investors on edge. Asian equity markets swiftly surrendered gains, while European shares descended into red territory as participants re-evaluated the likelihood of higher US interest rates. The bearish domino effect from Europe, coupled with risk aversion may limit gains on Wall Street later today.
Although the stock market rally has been phenomenal this quarter, investors should remain vigilant as the bearish attributes for a selloff still linger in the background. The political risks in Europe, Brexit woes and ongoing Trump uncertainties could still trigger a wave of risk aversion. While the upside momentum may continue to elevate global stocks to gravity-defying levels, an unexpected catalyst could trigger a selloff that brings an end to the overextended market rally.
Sterling slides to seven-week low
Sterling bears were unleashed on Friday following the unexpected decline in UK services in February, rekindling concerns that ongoing Brexit woes are negatively impacting the economy. The visible slowdown in UK services which fell to 53.3 has added to the cocktail of soft economic releases this week that continue to pressure Sterling. With sentiment towards Sterling firmly bearish, further downsides may be expected as anxiety heightens ahead of the Article 50 invocation this month. From a technical standpoint, the GBPUSD is heavily bearish on the daily charts and a breakdown below 1.2200 could encourage a further selloff lower towards 1.2050.
Janet Yellen in focus
The Greenback has been explosively bullish this trading week as expectations mount over the Federal Reserve raising US interest rates in March. The hawkish chorus of Fed officials suggesting an imminent US rate increase has made the Dollar king, while positive US economic data continues to ensure the currency remains buoyed. Much attention will be directed towards Yellen’s speech this evening, which could cement expectations of a March rate hike if she reiterates a similarly hawkish mantra as other Fed officials.
Technical traders may pay attention to how the Dollar Index reacts around the 102.00 regions. There is a possibility that previous resistance at 102.00 could transform into a dynamic support, which in turn encourages a further incline higher towards 102.50.
Gold under fresh selling pressure
The growing speculation of the Federal Reserve raising US interest rates in March has exposed Gold to downside shocks, with the metal booking its biggest one-day loss of 2017 during Thursday’s trading session. Sellers have exploited the repeated hawkish comments from Fed officials to pressure the yellow metal, while a strengthening Dollar continues to cap upside gains. A scenario where the Greenback continues to appreciate amid the improving sentiment towards the US economy could leave Gold vulnerable to further losses. Although the concerns over political risks in Europe, Brexit woes and Trump developments attract investors to safe haven assets in the medium to longer term, bears currently remain in control on the daily charts. From a technical standpoint, further weakness below $1220 could encourage a selloff lower towards $1200.
Commodity spotlight – WTI Crude
Oil markets were vulnerable to losses on Thursday following reports that Russian crude production remained unchanged in February, rekindling concerns of weak compliance in the global output cut deal. The sharp selloff was fuelled by US government data showing that domestic crude inventories ascended to record highs last week. Oil prices may come under increased pressure from the combination of oversupply fears resurfacing, US shale pumping oil incessantly and a strengthening Dollar. From a technical standpoint, the breakdown below $53 on WTI Crude may open a path lower towards $52.
