It’s remarkable and somewhat alarming to see how the risk-off sentiment last Friday was swiftly replaced with a risk-on mood today, as fears eased over a looming global trade war.
Global stocks ventured higher during Tuesday’s trading session with Asian equities regaining ground, following Wall Street’s rebound overnight. European stocks were elevated by the renewed appetite for risk, and this positive momentum has the ability to support Wall Street this afternoon. There is a suspicion that the mounting pressure Trump is facing from political allies to reconsider the steep tariffs, has somewhat supported risk sentiment.
With Trump also signaling that the tariffs on steel and aluminum would be scrapped if the U.S. negotiates a “new & fair” NAFTA agreement, investors may be prompted to re-evaluate the chances of a global trade war. While the current market relief could push stocks higher, upside gains are likely to face headwinds in the form of uncertainty.
Currency spotlight – GBP/USD
The Pound received a boost on Monday, thanks to market optimism over the United Kingdom potentially securing a transitional deal with the European Union.
Although Sterling extended gains on Tuesday, many feel this had nothing to do with a change of sentiment towards the currency but rather Dollar weakness. With the Pound still gripped by the ongoing Brexit uncertainty, further losses remain on the cards. Technical traders will continue to closely observe how the currency reacts around the 1.3850 level. Sustained weakness below 1.3850 could encourage a decline lower towards 1.3750. Alternatively, a breakout and daily close above 1.3850 may invite an incline higher towards 1.3920 and 1.4000, respectively.
Commodity spotlight – Gold
It is interesting how gold prices appreciated during Tuesday’s trading session, despite stock markets across the globe rebounding.
While dollar weakness could have played a small role in gold’s appreciation, market uncertainty over a potential global trade war remains the driving factor. Although the yellow metal has scope to venture higher, investors must not overlook U.S. interest hike expectations which could limit upside gains. Taking a look at the technical picture, prices remain pressured below the $1,324.15 level. A failure for bulls to break above this level could encourage a decline back towards $1,310 and $1,300, respectively. A scenario where bulls conquer $1,324.15 could result in an incline back towards $1,340.