G7 stalemate sparks jitters

Stock markets violently oscillated between losses and gains during trading on Monday as the mounting Brexit anxieties coupled with heightened expectations over the Fed raising US rates in Q2 encouraged investors to scatter from riskier assets. Confidence towards the global economy was already fragile, and the disappointing G7 meeting that concluded without a proposal to renewing global growth may have rekindled a wave of jitters. With the horrible cocktail of events leaving market participants anxious, unease envelops the financial markets and this can be viewed in the Asia trading session that concluded negatively. This bearish domino from Asia severely punished European markets and could trickle into Wall Street consequently arresting Friday’s gains. It seems global stocks have been left depressed during trading this month and could continue to follow this fashion as a chaotic mixture of Brexit woes, global instabilities, central bank caution and erratic movements in oil prices leave investors on edge.

 

BoJ: Strike two

Sentiment towards the Japanese economy received a lashing during trading on Monday following the dismal trade data which renewed concerns over the state of the world’s third largest economy. Exports declined a hefty 10.1% in April while imports plummeted further at 23.3% which has simply left the BoJ under intense pressure to take action. This comes at a period where the resurgence in Yen strength from risk aversion has heavily wounded the nations export competitiveness consequently rekindling deflationary fears. What makes the situation even more dire is the fact that the United States has warned Japan for the second time over competitive devaluations and this has boosted speculation that the BoJ may be unlikely to weaken the Yen. With economic data in Japan repeatedly missing expectations, coupled with fading hopes over the effectiveness of Abenomics, this nation could be open to more punishment in the future.

The USDJPY bounce with force during trading this month with prices cutting through the daily 20 SMA as a mixture of profit taking and Dollar resurgence offered a foundation for bulls to attack. Although prices have breached above the daily 20 SMA, bears could reclaim control as long as the previous lower high at 112.00 defends. With prices still respecting the daily bearish channel, a breakdown below 108.50 could carve a path lower towards 106.00.

 

Dollar Bulls linger

The inflated expectations over the possibility of the Federal Reserve raising US rates in June or July have empowered the Dollar bulls with the Dollar Index surging above 95.00. While data in the States has displayed some improvement with inflation and retail sales exceeding expectations, the thick fumes of global uncertainty may be enough to sabotage the central bank’s efforts to take action. It should be remembered that the E.U referendum vote is one week after the central bank meeting and this alone should cause the Fed to think twice before taking any action in June.

Although Dollar bulls may be commended on their ability to take the index above 95.00, a decisive daily close below this level could open a path towards 94.00.

 

WTI Oil tires below $50

The WTI Crude saga continues with prices sinking towards $47 as reports have confirmed that Iran remains on a quest to boosting oil export capacity to 2.2 million barrels per day. Although the disruptions in major oil export nations such as Nigeria, Canada, and Venezuela have bolstered expectations that supply could be diminishing, this is only short term with price poised to decline when global output returns to the January highs. With the OPEC meeting looming, there is little optimism that the cartel comes to a decisive deal and such could encourage bearish investors to attack oil prices lower. From a technical standpoint, bulls are dominating but a breakdown below $47.50 could open a path towards $46.50.

 

Commodity spotlight – Gold

Gold prices stumbled during trading last week as the heightened expectations over the Fed raising US rates in Q2 encouraged sellers to install a heavy round of selling momentum. It is common knowledge that Gold is sensitive to US rate hike expectations, and this sharp turnaround following the hawkish FOMC minutes could leave the zero-yielding metal depressed. Although risk aversion remains rife from the elevated fears over slowing global growth, for Gold bulls to exploit this opportunity the Dollar may have to weaken considerably. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. A decisive breakdown and daily close below $1250 could spell trouble for the bulls with $1240 being a possibility.