Warnings to investors grow on 'Brexit' outcome

Market headlines on Wednesday are currently dominated by the world’s largest asset manager, BlackRock providing a stern warning to investors that the UK economy is going to suffer heavy consequences if citizens vote to leave the European Union in the upcoming and highly-anticipated EU referendum. BlackRock provided a very compelling and honest view on the possible consequences to the UK economy if the outcome was for the UK to leave the EU which included negative views on equities, the British Pound and even a warning that there could also be consequences for UK Prime Minister David Cameron regardless of what the outcome to the vote is.

Make no mistake, the UK economy is going to be dominated by uncertainty for at least the next four months, and there is an overwhelming argument in my opinion towards holding negative views on the UK markets and especially the British Pound. While the FTSE has rebounded over the past couple of days, this has been encouraged by a rebound in the price of oil and the major index is still set to encounter a rocky next couple of months. This would especially be the case if preliminary opinion polls continue to indicate that the upcoming vote might be very close. Why am I strictly negative on the British Pound? Investors are well-known for disliking uncertainty, and the confirmation from David Cameron that the vote would take place in June has certainly provided uncertainty for the UK economy, which will last at least the next four months. I am also paying close attention to the GBPUSD closing below 1.40 late last week, which is a strong psychological move from a technical standpoint and opens up the gates for further falls in the British Pound moving forward.

Elsewhere, there are reports that European Central Bank (ECB) member Benoit Coeure provided support to the idea that the ECB will continue to lower interest or minimum deposit rates as the EU economy continues to struggle to overcome both sluggish growth and extremely low inflation. The EURUSD fell to a near two-month low at 1.0833 with investors continuing to price in the possibility of further monetary stimulus being provided by the ECB later in March. I personally think that the EURUSD is going to continue slowly creeping towards its January low around 1.07. Discussions over whether the major currency pair could return towards parity levels should only be considered after its closes below 1.07, because this is significant support for the currency pair and this would then need to be followed by a close below 1.05 later on.

WTI Oil falls near $35 again

WTI Oil has once again suffered from profit-taking marginally close to the heavy psychological $35 resistance. Traders are very closely monitoring this region for WTI Oil, because a close above $35 or even higher than $34.75 would provide encouragement for those traders looking for a possible reversal in price and would open the gates for further moves higher on the charts. The reason for the $1 move lower in WTI Oil from $34.75 to $33.35 is being blamed on anticipation that the weekly US Crude Inventory report will show another increase in stockpiles, which has encouraged a return to concerns over the overwhelming oversupply of the commodity in the markets. Despite the drilling of US Oil rigs now declining to the levels seen in 2009, we are still yet to see this have a significant impact on US inventories.

Gold slipping lower before NFP report

The US Dollar is slowly showing some signs of building momentum against its currency partners in advance of the latest NFP report from the United States on Friday, which is likely behind Gold dropping around $20 over the previous day. I still find it difficult to believe that a robust NFP report will raise optimism that the Federal Reserve will continue with their previous plans to raise US interest rates further, and it would have to be an astonishingly strong employment report on Friday to encourage even the slightest optimism that there could be a move this coming month. I personally believe that traders are still continuing to monitor the $1200 area of Gold as a pivot level for their trading strategy, which basically means that an exceedingly strong round of Dollar strength would be needed for Gold to close below $1200 before we can talk about even further moves lower throughout March.

Moody’s cut China outlook to negative

Despite the Shanghai Composite Index trading higher by over 4% on Wednesday, there was disappointing news for the China economy when US ratings agency Moody’s cut its outlook for China from “stable” to “negative”. The agency expressed that reforms from China were needed to avoid a downgrade and that the change in outlook was based around expectations that Beijing’s fiscal strength would continue to decline. The change in outlook is disappointing news for China when you consider that it shortly follows a fresh round of data showing that the China economy is continuing to suffer from a decline in momentum. I do wonder whether the move from Moody’s was at all motivated by the emerging concerns outside of China regarding a sharp decline in FX reserves and capital outflows.