Markets prepare for explosive week

January 9, 2017 10:05 AM

Global stocks turned mixed during trading on Monday as investors adopted a cautious approach ahead of another fast and furious event filled trading week. Asian shares surrendered early gains amid risk aversion while European markets were infected by the downside momentum. Although some optimism over Trump’s fiscal stimulus boosting U.S. economic growth may elevate the markets, gains could be limited in the short term if anxiety heightens ahead of Wednesday’s news conference where President-Elect Donald Trump will take questions from the press. The onslaught of economic releases ranging from Trump's news conference, Fed Chair Janet Yellen’s speech and core U.S. data may cause market volatility to intensify further this week.


Sterling descends to 10-week low  

Sterling was exposed to painful losses on Monday following comments from Theresa May which aggravated the hard Brexit fears. Her comments stating that the UK cannot “keep bits” of the Europen Union membership have ignited concern of a disastrous Brexit, a scenario which may leave the UK in a very unfavourable position in the longer term. With the battle of words between politicians on how the government had a “muddled thinking” over Brexit adding to the uncertainty, Sterling should be destined to sink lower this week. It should be kept in mind that uncertainty remains the name of the game when dealing with the pound and such should make the weakness a recurrent theme.

The Sterling/Dollar was pounded considerably on Monday and remains technically bearish on the daily charts. Sellers are in control with bears effectively exploiting the downside momentum to hit new lows. A rising dollar from the prospects of higher U.S. interest rates could compliment the GBPUSD selloff in the medium term. There is a possibility that previous support around 1.2200 transforms into a dynamic resistance that encourages a selloff lower towards the 1.2000 target.

Dollar remains on the throne 

The greenback clawed back some of its losses last week following the mixed NFP report which reinforced expectations of future US rate increases this year. Although the 156,000 increase in December’s payroll fell short of expectations, the healthy 2.9% rise in wage growth was seen as supporting inflation consequently stabilising the Dollar. The main themes which may dictate where the Dollar trades in January should revolve around rate hike expectations, economic data and the President-Elect Donald Trump. With Donald Trump’s news conference on Wednesday and his inauguration on the 20th of January seen as major event risk for the Greenback, prices sensitivity may heighten as volatility intensifies.

The Dollar Index remains bullish on the daily charts as there have been consistently higher highs and higher lows. A breakout above 102.50 could inspire bullish investors to send the Index towards 103.50.

Spotlight: WTI Oil

WTI tumbled toward $53 per barrel on Monday following reports of Iran crude tanker exports surging despite the proposed deal with OPEC and non-OPEC to cutting oil production. Iran’s explosive increase in tanker exports have revived fears over the effectiveness of the proposed market shaking OPEC production cut deal with a seed of doubt already capping oils upside gains. For oil markets to stabilise or even maintain gains, investors must be provided with hard evidence that production levels are actually falling. While OPEC may be congratulated on their ability to bolster oil prices from the unexpected production cut agreement, this could come at a steep loss if investors are left empty handed once again. From a technical standpoint, WTI Crude is pressured above $53 and a breakdown below this level could open a path lower toward $52.

About the Author

Lukman Otunuga is an FXTM research analyst