Financial markets may experience extreme levels of volatility in the coming weeks as the catalytic combination of sporadic oil prices, ongoing Brexit anxieties and anticipation ahead of the U.S. presidential election leave investors on edge. Stock markets received a slight welcome boost on Tuesday with most major arena's swinging back into gains as talks of Hillary Clinton winning the first U.S. presidential debate renewed risk appetite.
Although Asian equities managed to charge into green territory post-debate, gains were swiftly relinquished in Europe amid the heavy losses in banks and carmakers. Wall Street could be exposed to steeper losses if the bearish domino effect from Europe provides a solid foundation for sellers to attack. It is becoming increasingly clear that the short term gains observed in stocks are becoming unsustainable with the ingredients of bear market potentially leaving stock markets exposed to heavy losses in the future.
Concerns over the global economy remain elevated while the mounting uncertainty ahead of the U.S presidential election could repel investors from riskier assets. Central bank caution remains a recurrent theme which has a negative grip on global sentiment and oil prices volatility continues to sour risk appetite. The ingredients for a bear trend ripen by the day and it could take an unexpected catalyst to trigger a steep stock market selloff.
Sterling bears exploit Brexit anxieties
Sterling bears were unleashed last week with the GBP/USD currency pair approaching post-Brexit lows as the persistent Brexit anxieties haunted investor attraction towards the currency. It is becoming quite clear that the Brexit has a firm grip on the Sterling with investors slowly digesting the unfavourable impacts it may have on the UK economy in the longer term. Sterling may be exposed to further losses with uncertainty mounting over when article 50 will be triggered and warnings growing over the UK being unable to have a trade deal with the European Union in two years. From a technical standpoint, the GBPUSD is under pressure on the daily timeframe as prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below 1.2950 could encourage a steeper decline towards 1.2850.
Dollar remains pressured
The withering expectations over the Federal Reserve breaking the tradition of central bank caution this year have left the Dollar under noticeable pressure. Although the Fed attempted to leave the doors open last week for rates to be raised in December, concerns over the health of both the United States and global economy could sabotage all efforts taken by the central bank to act. There may be an increasing focus on US domestic data which if exceeds expectations, could provide a justifiable reason for U.S. rates to be raised at least once in 2016. Investors may direct their attention towards the US consumer confidence data which may provide additional clarity on the health of the US economy. An improvement in consumer confidence could elevate sentiment towards the States consequently providing dollar bulls a lifeline.
The U.S. Dollar Index is pressured below 96.00 on the daily timeframe. Prices are trading below the daily 20-period simple moving average while the MACD is in the process of turning to the downside. A breakdown below 95.00 could open a path lower towards 94.00.
Commodity spotlight: WTI oil
WTI Oil found resistance below 46.00 on Tuesday as optimism crumbled over the success of this week’s informal OPEC meeting in Algeria. Saudi Arabia on Tuesday destroyed all hopes of oil producers securing any deal whatsoever after the nation said the informal meeting was one of consultation while Iran’s oil minister has stated that it was not the right time for OPEC to make a decision. This development should be no surprise as OPEC is notorious for inflating expectations of a freeze deal before leaving investors empty handed. With the excessive oversupply of oil in the markets still a dominant theme, WTI could be exposed to steeper losses if the informal meeting concludes with no changes. WTI Oil bears may make an appearance once the $43 per barrel support is conquered.