'Investors should be under no illusion of a change in the GBPUSD bearish bias' - Lukman Otunuga, FXTM
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PROFILE
• Current Job: Research Analyst at ForexTime (FXTM)
• Career: Spent two years as a research analyst with international currency broker FXCM prior to joining FXTM. Holds a BSc degree in Economics from the University of Essex and an MSc in Finance from the London School of Business and Finance.
Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency markets.
GBPUSD has picked up a good recovery on upbeat CPI and Retail Sales data. Do you think a weaker Pound might be a good thing for the BoE and the UK economy?
The uncertainty over Brexit has limited gains on Sterling this quarter with bears on standby to exploiting the technical bounces to drive prices lower. Although recent reports which showed a pickup in CPI and retail sales have somewhat boosted sentiment towards Sterling, investors should be under no illusion of a change in the bearish bias. With further price weakness expected as the Brexit negotiations get under way, there will be many winners and losers. British manufacturers and exporters may warmly welcome a weak Pound as foreign buyers need less currency to purchase UK’s goods. While exporters may benefit, importers who import raw materials globally will face a painful rise in prices. With the current inflation level of 2.3% superseding average earnings which stand at 2.2%, consumer spending may be negatively impacted which could compound to the growing fears over how the UK economy may fare post-Brexit. While the spiraling inflation has sparked speculations of the Bank of England raising UK interest rates in the medium to longer term, the uncertainty around Brexit and concerns over slowing economic growth could prompt the Central Bank to remain on standby.
Markets experienced a recent shift in sentiment, turning to risk aversion, with stocks falling and JPY and Gold rising. Do you expect this to be a trend for the following months?
Risk aversion may become a dominant market theme in the following months if the renewed concerns over protectionism, Brexit unknowns and Trump jitters weigh heavily on sentiment. Uncertainty over Donald Trump’s economic policies has already scattered investors away from riskier assets with safe-havens such as the Yen and Gold back in fashion. The growing threat of Donald Trump’s market shaking promises on tax cuts and fiscal spending falling short of expectations may leave investors on edge with risk-off becoming the new name of the game. While the political risk in Europe has somewhat receded as expectations diminish of Marine Le Pen wining the French elections, the Brexit woes and impacts it may have on the UK and Europe should encourage investors to seek safety. On the daily charts, Gold is turning increasingly bullish with a solid breakout above $1260 opening a path higher towards $1300 in the medium term.
What's your outlook on the NZDUSD? Is the Kiwi overvalued?
The NZUDUSD has staged an incredible technical bounce on the daily charts on the back of Dollar weakness. With the Greenback on a slippery decline amid the Trump jitters, this could translate to further upside on the NZDUSD moving forward. From a technical standpoint, the pair is on route to fulfilling the prerequisites of a bullish trend as there have been consistently higher highs and higher lows. Prices are trading above the daily 20 SMA while the MACD could be on route to crossing to the upside. A technical breakout and daily close above the sticky 0.7100 level could encourage a further incline higher towards 0.7250.
Oil prices are back below 50$. How big of a factor is this fall on overall market sentiment? Can cheaper oil derail the Fed rate hike train?
WTI Crude remains exposed to downside risks as optimism diminishes over the effectiveness of OPEC output cuts. Although speculations have heightened OPEC extending the supply cuts by another six months, questions may be raised if such may stabilize the oil markets, especially when factoring the resurgence of U.S Shale. Depressed oil prices may compound to the messy mixture that has heavily bruised market sentiment this quarter. With cheaper oil prices potentially pressuring global stocks further and adding to the uncertainty, this may translate to the Federal Reserve maintaining its cautious approach. A cautiously treading Fed may erode expectations of further US interest rate hikes this year consequently exposing the Dollar to further losses.
In regards to the technical outlook, WTI Crude on the monthly chart has failed to break above $55 with the current downside momentum opening a path towards $45. The oversupply concerns have haunted investor attraction towards Oil and with weakness becoming a recurrent theme, a breakdown below $45 may open a path towards $40 in the medium to longer term.
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