Markets mixed ahead of US GDP

March 30, 2017 09:51 AM

Global stock markets were mixed on Thursday with investors losing their appetite for risk after the Brexit reality started to sink in. Asian shares turned lower amid the China liquidity fears and the sense of caution has already limited gains in Europe. With the Brexit developments and fresh liquidity concerns in China possibly denting risk sentiment further, the financial market may find itself under selling pressure. Although global stocks have handsomely benefited from the Trump effect and unwavering optimism over fiscal stimulus boosting U.S. growth, the downside risks could be extreme if reality fails to match market expectations.

Sterling turns highly sensitive
Sterling could be in store for a very rocky ride moving forward as the Brexit talks officially get under way. With the remaining 27 EU member states meeting at the end of April to agree on the guidelines for the Brexit settlement and formal negations potentially starting as late as June, Sterling sensitivity may intensify as investors become jittery. With the hard Brexit fears lingering in the background and concerns of complications in the early stages of the negations weighing on sentiment, the bearish bias towards Sterling remains intact. While there is a possibility of the British pound/U.S. dollar (GBP/USD) currency pair experiencing technical bounces as investors reposition, sellers may exploit the opportunities to install fresh rounds of selling. From a technical standpoint, the GBP/USD bears need to conquer 1.2400 to open a path lower towards 1.2300.

Dollar Index breaks above 100.00
The chorus of hawkish speeches from Fed officials during Wednesday’s trading session has encouraged Dollar, bullish investors, to elevate the Dollar Index back above the psychological 100.00 level. It seems like markets may be looking beyond last week’s failure of Trump’s healthcare reform with investors maintaining some optimism over the pending fiscal stimulus. While a layer of uncertainty over Trump has created some headwinds for the bulls, the improving sentiment towards the U.S. economy as a whole could play a part in ensuring the currency remains buoyed. Investors may direct their attention towards the pending U.S. GDP report for four quarter of 2016 which could boost the Dollar further if the figure exceeds expectations. Technical traders may observe if the Dollar Index is able to attain a daily close above 100.00 which could encourage further upside.

Commodity spotlight – WTI
WTI Crude charged into gains on Wednesday with prices clipping above $49.60 after U.S. crude inventories grew less than expected which eased some oversupply concerns. Although the relatively bullish US crude inventories data and supply disruptions in Libya have provided oil markets a welcome boost, the gains may be limited as investors mull over the effectiveness of OPEC’s supply cuts. As long as optimism continues to fade over OPEC stabilizing the saturated oil markets, bears will have many opportunities to attack prices lower. From a technical standpoint, oil bears may exploit the technical bounce to send oil prices back below $49.

About the Author

Lukman Otunuga is an FXTM research analyst