Markets mixed as investors tread carefully

The Greenback was under pressure on Tuesday with prices finding comfort near a six-month low against a currency basket as political turmoil in Washington weighed heavily on sentiment. A growing sense of anxiety over Trump’s ability to move forward with the pro-growth policies amid this uncertainty has added to the downside risks. With the soft U.S. economic data compounding to an already messy mix yet again, questions have been raised over the impact this will have on the Fed hawks.

Much attention will be directed towards the pending Fed minutes on Wednesday which investors expect to provide some sort of confirmation of a rate hike in June. Although the Federal Reserve has placed itself on an aggressive hiking path this year, the combination of political instability in Washington and soft economic data could obstruct the central bank's efforts to raise rates three times this year. The rising Trump jitters are likely to influence the Federal Reserve’s monetary stance in the longer term with the third pending rate hike in 2017 coming under threat.

From a technical standpoint, the dollar remains heavily pressured on the daily charts. Repeated weakness below 97.00 should encourage a further decline towards 96.00.

Euro continues to shine
A noticeable relief from political risk in Europe has boosted the appetite for the euro this month with prices skyrocketing to a fresh six-month high above 1.1200 as of writing. With Emmanuel Macron’s market friendly victory in the French elections dealing a symbolic blow to populism, investors have redirected all their attention towards the improving economics of Europe. There is a growing possibility of the European Central Bank rattling the financial markets in the pending ECB meeting as the recent political relief invites ECB hawks. With economic data from Europe following a positive trajectory, the European Central Bank could start considering a stimulus exit at the next meeting which may strengthen the euro further. 

From a technical standpoint, a vulnerable dollar has attributed to the upside rally on the euro/U.S. dollar (EUR/USD) currency pair and has the ability to send the EUR/USD towards 1.1300. A breakout above 1.1300 should provide enough encouragement for bulls to target 1.1500.

Sterling steady ahead of inflation report hearing
Sterling edged lower on Tuesday as investors remained on standby ahead of the Inflation Report Hearing at the UK Treasury Select Committee. With the repeatedly soft economic data and uncertainty over Brexit weighing on sentiment, it will be interesting to see how today’s inflation report hearing plays out. A verbal battle between BoE Mark Carney and the treasury committee over Brexit and the economic outlook could spark some Sterling volatility

The Brexit risk should limit gains on Sterling with further downside expected in the medium to longer term as the official Brexit talks and negotiations get under way. The British pound/U.S. dollar (GBP/USD) currency pair bears need to break back below 1.2900 to open a path lower towards 1.2775.

Commodity spotlight – gold
Gold edged higher on Tuesday with prices clipping above $1,260 as political uncertainty in the U.S. and geopolitical tensions boosted appetite for safe-haven investments. Bulls remain in control on the daily charts and should be instilled with enough inspiration to conquer $1,260 this week if the dollar continues to depreciate. Although U.S. rate hike expectations may dictate where gold trades in the longer term, short term bulls remain in firm control with further upside expected once $1260 is breached. Technical traders may exploit the decisive break and daily close above $1,260 to propel prices higher towards $1,275.

About the Author

Lukman Otunuga is an FXTM research analyst