A touch of risk aversion crept into financial markets on Wednesday, as the sense of relief over easing U.S-China trade tensions was overshadowed by the rising geopolitical risk surrounding Syria.
Asian stocks closed mostly mixed due to market caution, with European equities sinking lower as investors adopted a guarded approach. Although Wall Street ended higher on Tuesday as trade fears eased, geopolitical tensions could pressure U.S equity bulls this afternoon.
The wild movements witnessed across global equity markets in recent weeks continue to highlight how fragile market sentiment remains amid the ongoing U.S-China trade developments. Although conciliatory remarks from President Xi Jinping have soothed concerns over a global trade war, will this be enough to support equity bulls in the long term? Stock markets still remain vulnerable to downside losses, especially if escalating tensions in Syria prompt investors to scatter away from riskier assets to safe-haven investments.
Sterling supported by Dollar weakness
Sterling surrendered some gains but remained firm on Wednesday, after British manufacturing output fell unexpectedly in February.
The U.K’s manufacturing output fell 0.2%, its first drop since March 2017. Today’s soft economic data could fuel concerns that economic growth cooled in the first quarter of 2018. However, Sterling is likely to remain supported by ongoing Dollar weakness. Market expectations over the Bank of England raising U.K interest rates in May remain high, while a vulnerable Dollar is likely to continue supporting the GBPUSD’s upside.
Focusing purely on the technical picture, the GBPUSD is turning increasingly bullish on the daily charts. Prices are trading above the 50 Simple Moving Average while the MACD has crossed to the upside. Bulls could attack the 1.4230 level, as long as prices remain above 1.4100.
U.S inflation and FOMC minutes in focus
The Dollar extended losses against a basket of major currencies as lingering trade war fears and political uncertainty in Washington weighed heavily on the currency.
Much focus will be directed towards the U.S CPI data reading today and anticipated FOMC minutes from the meeting in March, which could determine the Dollar’s near-term direction. An upside surprise in U.S inflation, coupled with a more hawkish tone in the FOMC minutes, could throw the Dollar a lifeline.
Taking a look at the technical picture, the Dollar Index remains under noticeable pressure on the daily charts. A breakdown below 89.50 could encourage a decline towards 89.00.
Commodity spotlight – WTI Oil
Escalating tensions in the Middle East have stimulated concerns over potential supply disruptions; this is likely the main culprit behind oil’s recent aggressive appreciation.
While oil is likely to remain supported by geopolitical risk and a vulnerable U.S Dollar for the moment, soaring U.S Shale production has the ability to cap upside gains. The fundamentals behind oil are likely to remain shaky in the longer-term as increasing U.S output complicates OPEC’s efforts to prop prices higher and rebalance markets. Taking a look at the technical picture, WTI Crude has scope to reach $68.00 if bulls can break above $66.50. A scenario where prices are unable to breach the $66.50 resistance level could encourage a decline back towards $64.00.
