China enters the scene once again

A sense of anxiety threatened the financial markets during trading on Thursday following the unexpected currency depreciation by the People’s Bank of China that rekindled concerns over the health of the world’s second largest economy. This abrupt move by the central bank signaled early warning signs of future woes which consequently sent China stocks plummeting to fresh two and a half month lows. With GDP growth potentially faltering below the 6.5%-7% yearly target, Beijing may be forced to implement further aggressive stimulus measures as the nation continues to transition into a service-led economy. Although the ongoing Fed rate hike and Brexit developments have dominated the headlines, China woes continue to linger unforgotten in the background. Concerns remain elevated over the economic growth of the world’s second largest economy and with domestic data repeatedly missing expectations this month; sentiment remains firmly bearish towards China.

 

Sterling bulls rampage

The Sterling surged with vitality across the board during trading the week as the leading “Bremain” poll reinforced expectations that the UK could remain in the Eurozone after the E.U referendum vote on the 23rd of June. Most participants may have been swayed to the “Bremain” camp after major financial institutions repeatedly voiced their concerns over the untold impacts of a Brexit to the UK economy. Although the Sterling has been depressed from a mixture of tepid domestic data and diminishing expectations over the Bank of England raising UK rates, the elevated hopes that the UK may remain in the EU has offered a foundation for bulls to attack. With second estimate GDP meeting expectations at 0.4%, the focus may remain on the Brexit developments.

Sterling bulls have taken the GBPUSD above the tough 1.4700 resistance and a solid weekly close above this level should open a path towards 1.4800. Although the Brexit uncertainty was the main force which haunted investor attraction towards the Sterling, if the “Bremain” camp retains dominance then bulls could be a force to be reckoned with.

 

Dollar bulls dominate

The Dollar bulls received encouragement during trading this week following the impressive home sales report that elevated expectations over the Federal Reserve raising US rates in Q2. Dollar resurgence continues to rattle the global markets with the Dollar Index trading closer to 96.00. With US home sales amalgamating with the positive retail sales and inflation, the Fed have been provided a compelling reason to take action. If the NFP results exceed expectations next Friday, this could cause the Dollar to appreciate violently as speculations heighten further over a US rate hike in June or July. The Major barrier which could sabotage efforts taken by the central bank could be the lingering China woes and ongoing fears over slowing global growth that has exposed most nations to downside risks.

 

WTI Crude pierces $50

WTI crude surged sharply towards $50 as the declining crude stock piles bolstered expectations that supply could be dwindling. The combination of declining stock piles, short term production disruptions in major oil export nations and speculations of renewed demand have offered a foundation for bulls to attack. Although bulls may be commended once again for this over extended correction, the upcoming OPEC meeting in June could shatter this unstable tower. Eventually, global production may return to all-time highs while the little optimism that a production freeze deal may be struck should keep prices capped. From a technical standpoint, $50 is a critical resistance on the weekly timeframe. A breakout above this level could spell trouble for the bears.

 

Commodity spotlight – Gold

Gold remains under pressure as a mixture of an appreciating Dollar and elevated US rate hike expectations have heavily eroded the metals allure. This yellow metal has received extensive punishment from sellers and could be poised to decline further if US core durable goods exceed expectations. Although there are still concerns over slowing global growth and renewed China woes, US rate hike expectations have overwhelmed this metal’s safe-haven attraction consequently leaving prices vulnerable to further losses. From a technical standpoint, the candlesticks are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support around $1240 could transform into a dynamic resistance for a deeper decline towards $1210.