Wednesday 24th May, 2017
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Scottish referendum shocker rattles sentiment

Scottish referendum shocker rattles sentiment

FXTM Research Analyst Lukman Otunuga comments on the recent reports confirming that Theresa May will be triggering Article 50 on the 29th of March.

Dollar weakness has encouraged bull­ish investors to el­evate the Sterling/Dollar to a fresh three-week high at 1.2436 during Monday’s trading session. Although the emergence of a lone BoE hawk last week cou­pled with concerns about rising inflation has provid­ed Sterling a boost, inves­tors should be under no il­lusion that this has changed the bearish sentiment. With recent reports con­firming that Theresa May will be triggering Article 50 on the 29th of March al­ready sparking jitters, Ster­ling may be in-store for some serious punishment this week. It is becoming clear that the Brexit devel­opments are likely to dic­tate where Sterling trades in the medium to longer term with uncertainty effective­ly limiting any extreme up­side gains. From a technical standpoint, Sterling bears may re-enter the scene back below 1.2300.
 
Risk sentiment dented by protectionist fears
 
Stock markets were un­der noticeable pressure during Monday’s trading session with risk appetite absent after the G20 decid­ed to drop a pledge to avoid trade protectionism. Asian shares concluded most­ly mixed amid the slug­gish trading mood while risk aversion exposed Eu­ropean equities to down­side losses. Although Wall Street limped into gains last week, further upside may be limited this evening as the renewed protection­ism concerns keep inves­tors on edge. With major finance leaders from the largest economies in the world failing to persuade the US to renew an anti-protectionism pledge, the growing threat of a poten­tial global trade war may create serious headwinds for this phenomenal stock market rally.
 
Dollar Index levitates above 100.00
 
The lingering impacts of last week’s “dovish hike” can still be seen on the Greenback which remains on the back foot as of writ­ing. Although sellers have exploited the disappoint­ment from the Fed’s less than hawkish stance to at­tack the Dollar Index re­peatedly, the downside may be limited as sentiment improves towards the U.S economy. Investors may pay extra attention to the string of speeches from Fed officials this week which could offer further clarity on interest rate hike tim­ings this year. A hawkish surprise could install Dol­lar bullish investors with enough inspiration to send prices back towards 101.00.
 
From a technical stand­point, the Dollar Index re­mains heavily pressured on the daily charts. The 100.00 psychological support re­mains a key level which could protect the bulls or assist the bears.
 
Commodity spotlight – WTI Oil
 
WTI Crude found itself vulnerable to heavy loss­es on Monday with prices sinking towards $48 as the rising drilling activity in the U.S reinforced the over­supply fears. Sentiment re­mains bearish towards oil and the fading optimism over the effectiveness of OPEC’s supply cut deal could encourage sellers to attack prices further. Al­though OPEC’s inabili­ty to balance the oil mar­kets in the first half of 2017 has sparked speculations of the organization extending its six-month contract, the rise of U.S shale and lin­gering concerns of some members not fully follow­ing the compliance in cut­ting production could cre­ate headwinds.
 

 

From a technical stand­point, WTI Crude is heav­ily pressured on the daily charts and a break below $48 could open a path low­er towards $47.

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