Sterling sinks ahead of BoE rate decision

The Sterling was flung onto a fierce rollercoaster ride during trading this week with prices surging to weekly highs at 1.4347 against the USD following the unexpected rise in UK CPI for March, which temporarily boosted optimism towards the UK interest rate outlook for 2016. Bullish investors exploited this moment of inspiration to retrieve further dominance over the Dollar after the terrible US retail sales report reinforced a wave of a caution over the Fed’s ability to raise interest rates in Q2. While the impressive CPI of 0.5% has challenged the ongoing talks of notoriously low levels of inflation in the UK economy, this abrupt surge in the GBPUSD felt inflated as the current unstable economic landscape coupled with ongoing Brexit concerns should have kept prices capped. As expected during trading on Wednesday investors utilized the sharp rise in the GBPUSD as a relief rally to simply send prices much lower ahead of the Bank of England rate decision.

While it is almost certain that UK rates will be kept unchanged at 0.5% today, most of the attention may be directed towards Mark Carney’s rhetoric and thoughts on the intensifying Brexit concerns which have noticeably haunted investor attraction towards the pound. Carney joins a select group of financial heavyweights who have wasted no time in voicing their fears on the potential damage a Brexit may have in the UK, Europe, and global economy. In fact with speculations mounting that a potential Brexit may force the BoE to slash UK rates rather than hike, it is likely that the doves may come out to play today offering an opportunity for another round of selling momentum within the vulnerable pound. Investor sentiment remains bearish towards the Sterling and the heightened expectations of a potential rate cut mixed with ongoing Brexit woes should continue to weigh heavily on the currency.

The GBPUSD has found a firm resistance just below 1.4350 and could sink further as bearish investors pile onto the shorts. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support at 1.4200 could become a dynamic resistance which should invite an opportunity for a deeper decline towards 1.4100 and potentially lower.

 

Stocks markets beat odds

Against all odds global stock markets have continued to rally despite the mounting concerns over slowing global growth which should have punished investor risk appetite. Europe, America, and Asia have surged as rising oil prices have provided a short term fix from the deep-rooted concerns over the state of the global economy. While short-term gains may continue to be realized, investors should keep in mind that this current rally seems unnatural and goes against the fundamentals and this could spell trouble in the medium term. It is common knowledge that oil prices have partly attributed to the resurgence of global stocks, but if the Doha meeting on Sunday disappoints, both oil and stock markets may sink like a stone.

 

Dollar under pressure

Sentiment towards the Dollar was dealt a heavy blow during trading on Wednesday following the terrible retail sales report which rekindled concerns over the state of the US economy. This release came at a time when expectations were already fading over the Fed raising US interest rates amid the global uncertainties. Although Dollar bulls may have a chance to redeem themselves today if the CPI data beats expectations, the fact that global developments continue to dictate when the Fed may raise US rates should keep the Dollar depressed moving forward.

The Dollar Index remains bearish on the daily timeframe and with Dollar weakness potentially becoming a major theme in the currency markets; the index may be poised for further declines. 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 back towards 94.00.

 

Crude Oil awaits Doha meeting

The WTI Crude saga continues with crude oil prices meandering around the $41 levels ahead of the heavily anticipated and game-changing Doha meeting on Sunday. There have been ongoing talks from major oil producers which have generated speculative boosts in prices throughout this trading week while a weakening Dollar has kept prices somewhat buoyed. WTI may continue to oscillate from the $41 as investors ponder on the likelihood of a successful meeting on Sunday and the impacts it may have to a market that is already heavily saturated. Even if a freeze is confirmed, Iran continues to pump incessantly, while Russia’s output has hit post-Soviet highs. OPEC has played a dangerous game of crying wolf and if Sunday ends without an amicable solution then bears should be granted an opportunity to attack prices back towards $38 and potentially lower.

 

Commodity spotlight – Gold

Gold bulls were weakened this trading week following the sharp rise in oil prices that boosted risk appetite and lessened interest in safe haven investments. Although prices have sunk over $25, this yellow metal remains bullish and the lingering anxieties about the state of the global economy may act as a welcome boost for another surge towards $1250. With expectations fading towards the Fed raising US rates in Q2 coupled with a weakening Dollar, Gold could be poised to appreciate in the near term. The current correction should offer an opportunity for bullish investors to install another round of buying momentum with targets stretching towards $1250 and potentially higher. Bulls remain in control as long as the $1200 support defends well.