7 March 2016
Written by Jameel Ahmad, Chief Market Analyst at FXTM
While another outstanding period of Dollar weakness following the US Non-Farm Payroll report might dominate headlines, what investors really need to be paying attention towards is WTI Oil concluding trading last week above $35. This was seen as a critical psychological resistance level with $35 repeatedly acting as a ceiling for WTI Oil and now that we have closed trading above $35, a signal has been activated that will encourage traders to price in further moves higher up the charts.
We are now looking at the potential for a bullish reversal in the price of WTI Oil, and the move above $35 late in trading last week has opened up the gates for further moves higher for the commodity. This will obviously provide a boost to any exporters of commodities and will also probably provide an increase in investor sentiment when it comes to those economies that were thought to be hurting over depressed oil prices.
Regardless of the economic outlook still remaining plagued by an oversupply in the market, a lack of conviction from oil producing nations to work together and reduce the oversupply, as well as no correlation being noticed yet between continued declines in the drilling of US oil rigs and the weekly inventory reports from the United States – technical traders will now speak with renewed confidence that a further price recovery in WTI could be on its way.
Dollar bears continue to dominate
Despite the unexpected news that an impressive 242,000 jobs were added to the US economy over the previous month, traders are continuing to reject the Dollar. The USD continued to receive widespread punishment after the NFP report regardless of the headline job number smashing expectations and this suggests to me that there is no confidence in the Dollar right now. One of the reasons why the USD was exposed to another aggressive period of weakness was because the NFP report showed a contraction in hourly wages, which would most likely disappoint the Federal Reserve and continue to encourage downbeat views regarding inflation expectations.
At the end of the day, the major reason for the ongoing vulnerability when it comes to the Dollar is because of pushed back US interest rate expectations. If the Federal Reserve would have maintained course and continued to outline what Janet Yellen had been repeating throughout the whole of last year that the pace of interest rate rises would be slow, rather than unexpectedly surprising investors at the beginning of the year over the prospects of another four interest rate rises in 2016 then I don’t think the USD would have been so regularly exposed to heavy rounds of selling.
GBPUSD continues to unexpectedly rebound
The ongoing period of USD weakness throughout the currency markets has unexpectedly provided buyers of the GBPUSD with an opportunity to recover what have been exceptional losses throughout the first two months of 2016. While the British Pound is recovering losses, we expect for the GBPUSD to meet longer-term sellers around 1.43 and there are still strong downside risks for the British Pound ahead.
An event as politically huge as an EU referendum simply can’t be ignored from an investor point of view, and a scheduled speech from BoE Governor Mark Carney later this week where he might comment on the upcoming vote could also encourage some profit-taking on the GBPUSD.
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