Markets gripped by Monday jitters

March 6, 2017 10:15 AM

Global stocks were vulnerable to losses during early trading on Monday with investors on edge as the heightened geopolitical tensions in East Asia weighed on risk sentiment. Asian shares traded mostly mixed amid the jitters while risk aversion exposed European equities to downside shocks. With the overall trading mood subdued and market participants treading cautiously, gains in the financial market could be limited this evening. 

It should be kept in mind that the rising optimism over Trump’s fiscal policies boosting U.S. growth has attributed to the highly impressive stock market rally this quarter. A situation where the anticipated policies fall below expectations could still result in a sharp selloff across the board.

Greenback on standby
The lack of buying incentives for fresh Dollar purchases coupled with profit taking has placed the Greenback on standby during Monday’s trading session. Although Janet Yellen’s hawkish remarks last Friday have heightened speculations of a March rate hike, Dollar bullish investors may still be seeking further inspiration elsewhere. Much attention will be directed towards Friday’s NFP which could offer some insight on how the U.S. labor force has fared in the New Year. A strong NFP should cement expectations of a March rate hike with bullish investors exploiting the optimism to elevate the Dollar Index back above 102.00.

Sterling bears eye 1.2200
The growing anxiety ahead of the Article 50 invoke this month has exposed Sterling to noticeable losses during Monday’s trading session. Uncertainty has made Sterling fundamentally bearish with investors likely to exploit the Brexit developments to drag the currency much lower this quarter. From a technical standpoint, the British pound/U.S. dollar (GBP/USD) currency pair is tilted to the downside on the daily charts as there have been consistently lower lows and lower highs. Previous support around 1.2300 could transform into a dynamic resistance that encourages a further decline back towards 1.2200.

WTI Crude losing upside momentum
WTI Crude was under pressure during Monday’s trading session as fears of lower growth targets in China sparked discussions of the nation cutting oil demand. The selling pressure was fuelled by the ongoing concerns over Russia’s compliance with the global output cut which revived some oversupply anxieties. With U.S. inventories rising incessantly and the Dollar set to strengthen from the prospects of higher U.S. rates, oil markets could be poised to trade lower moving forward. From a technical standpoint, WTI Crude is pressured on the daily charts and a breakdown below $52.50 could encourage a further decline towards $51.50.

Commodity spotlight – Gold
The rising optimism over the Federal Reserve raising U.S. interest rates in March has encouraged sellers to repeatedly attack gold. Although risk aversion from geopolitical tensions in East Asia may provide some support for the zero-yielding metal, prices are looking increasingly pressured on the daily charts. A solid NFP this Friday combined with a strengthening Dollar could provide enough downside momentum for bears to conquer $1,220. From a technical standpoint, a breakdown below $1,220 may open a path lower towards $1,200.

About the Author

Lukman Otunuga is an FXTM research analyst