Markets on edge as Trump’s inauguration looms

January 18, 2017 12:43 PM

Financial markets were on the edge this week as the explosive combination of Brexit developments and Trump fuelled uncertainties weighed heavily on global sentiment. Asian shares lacked direction during Wednesday’s trading session with the touch of risk aversion limiting gains in Europe. Although the financial market may be gripped by the Trump uncertainties this evening, American stocks could march into gains if the pending U.S. CPI report exceeds expectations. With investors adopting a defensive stance ahead of Donald Trump’s inauguration this coming Friday, there is a threat of investors scattering away from riskier assets to safe-haven investments such as gold.

U.S. CPI and Yellen in focus
The Greenback was open to heavy losses this week as the uncertainty ahead of Donald Trump’s inauguration this week encouraged bearish investors to install repeated rounds of selling. Bears exploited the President-Elect's comments on how “the Dollar is too strong” to drag the Dollar Index to the low of 100.26 during Tuesday’s trading session. With the sheer lack of clarity provided on the proposed fiscal stimulus still grating on investor sentiment, the Dollar could be exposed to further weakness in the short term. Investors may direct their attention towards the U.S. CPI figures which if impress could reinforce the speculations of the Federal Reserve raising U.S. interest rates three times this year. A hawkish Yellen who remains optimistic about the U.S. economy and future rate hikes could provide the Dollar Index a lifeline to keep above the 100.00 support level.

WTI Crude under pressure
WTI Crude slipped back below $52 on Wednesday as concerns heightened over U.S. producers boosting output amid the higher oil prices. Although major oil producers have repeatedly displayed their cooperation and optimism in fighting the excessive global supply, the fact that OPEC has only agreed to limit output for six months simply triggered fears of the oversupply woes returning. Price sensitivity should remain the key theme when dealing with oil this quarter with declines expected if investors fail to see OPEC and non-OPEC cutting production as pledged. Technical traders could exploit the breakdown below $52 on WTI crude to drag prices lower towards $51 and $50 respectively.

Commodity spotlight – Gold
Gold was elevated to eight-week highs above $1,215 on Tuesday as the mixture of uncertainty and Dollar weakness bolstered its safe-haven allure. Prices have breached the $1,210 resistance level and could be poised to edge higher this week if uncertainty intensifies ahead of Donald Trump’s inauguration on Friday. Technical traders may observe how prices react to the $1,210 previous resistance which has the ability to transform into a dynamic support. The next relevant level for gold in the event of another appreciation is $1,230.

About the Author

Lukman Otunuga is an FXTM research analyst