Dollar bulls submit to Yellen

Global sentiment received an unexpected uplift during this trading week following Janet Yellen’s heavily dovish comments which rapidly extinguished the inflated expectations over a US rate rise in April. Her cautious tone towards the Fed’s implementation of future rate increases overshadowed the hawkish views of other Fed officials, while providing the clarity which investors had long sought. It seems likely that the unstable financial economic landscape has sabotaged any opportunity of the Fed raising US rates anytime soon and the fears over faltering inflation in the United States only adds insult to injury. This visible clash of opinions between Fed officials does raise questions about the overall unity of the central bank, and it will be interesting to see what the official minutes of March’s statement will have to say. Market participants may focus their attention towards Friday’s NFP, which after Yellen’ comments will have very little impact in providing a compelling case for an April rate hike. Although this may be the case, an impressive figure could add to the building blocks for the Fed to take action sometime in July.

The Dollar received a crippling blow following Yellen’s dovish rhetoric and this can be seen in the Dollar Index which sunk to a five month low at 94.60. This Index was already technically bearish, but with the fundamentals suggesting Dollar weakness is taking center stage in the global currency markets, sellers may be encouraged to attack prices at any opportunity. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support at 95.50 may transform into a dynamic resistance which could trigger a further decline towards 94.00.

Stocks receive a boost

Stock markets were offered a lifeline during trading on Tuesday following Janet Yellen’s dovish comments which renewed risk appetite and encouraged investors to seek riskier assets following the clarity provided. A burst of volatility powered the European markets that were previously shackled by risk aversion with most mining stocks consequently surging, sending equities into green territory. This positive move from Europe complimented American stocks that were already enjoying a weaker dollar amid fading expectations of a US rate rise. Asian markets failed to retrieve this feel good effect as the lingering signs of risk aversion continued to boost appetite for the safe-haven Japanese Yen, which in turn capped Asian equities.

This stock market rally is thought provoking and raises many questions about the skewed nature of the financial markets. A dovish Yellen who cites concerns over slowing global growth and ongoing China woes should send jitters across the markets with risk aversion punishing riskier assets but the opposite has occurred. I feel that with fears over slowing global growth still lingering in the background and falling oil prices periodically chipping away at confidence towards the global economy, global stocks may be poised to fall eventually.

Brexit fears power Sterling bears

The Sterling/Dollar experienced a sharp appreciation this week and this has nothing to do with an improved sentiment towards the Sterling, but is due to Dollar weakness from the fading expectations of a US rate rise. Sentiment continues to remain immensely bearish towards the pound and the mounting Brexit concerns have provided a foundation for bearish investors to chip away at the Sterling at any signs of weakness. Mark Carney will be speaking today in Tokyo about financial stability and may likely dodge any questions thrown in regards to the Brexit topic, but any subtle signs of caution from his tone may trigger another selloff in the Sterling.

From the start of the year the pound has been victim to unrelenting selling from Brexit concerns, while domestic data from the UK has provided little incentive for the Bank of England to raise UK interest rates. The GBPUSD remains bearish and may be poised to decline later in the week as the bearish pressure intensifies. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below 1.41 should open a path towards 1.40 and potentially lower.

WTI Oil breaches $38

The heightened anxieties over the unrelenting oversupply of oil in the heavily saturated oil markets have provided a foundation for bearish investors to send WTI below $38 this trading week. This commodity is heavily bearish and the incessant build up in crude stock piles continues to haunt investor attraction consequently sabotaging any recovery in prices. It seems that the overextended relief rally which took prices to the highs of $42.45 may have come to an abrupt end with a further decline towards $35 sealing the deal. With expectations rapidly fading over an effective deal in the April meeting in curtailing the supply glut, further declines in WTI may be expected. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below $38 should open a path towards $35 and potentially lower.

Commodity spotlight – Gold

Gold bulls exploited the diminishing expectations over future US rate rises and this offered a foundation for the precious metal to surge to fresh weekly highs at $1244. This yellow metal remains fundamentally bullish and may continue to flourish as Dollar weakness takes center stage across the global markets. With the Fed futures displaying a low 7% chance of a US rate hike in April, the shackles have been removed and bulls provided with the leeway to venture higher. If Friday’s NFP fails to meet expectations then Gold may surge as Dollar weakness provides the ticket needed for prices to surge back towards $1250 and potentially higher.