Written by Jameel Ahmad, Chief Market Analyst at FXTM
Local equity markets are attempting to conclude the week positively after risk appetite towards the stock markets globally received encouragement following Federal Reserve Chair Janet Yellen surprising onlookers by unexpectedly admitting in a public statement that QE round 4 could not be ruled out. While Janet Yellen far from expressed that another round of QE was set to be unleashed from the Federal Reserve, her statement of caution has reminded investors how hesitant the central bank will be towards raising US interest rates further and this has consequently flattened the Dollar.
With investors receiving assurances that it is still possible that US interest rate expectations can be pushed even further back than they have already been in 2016 anyway with the Federal Reserve already announcing that the four interest rate increases targeted in 2016 has already been dropped to two, risk appetite is improving and global stock markets are looking attractive again.
March has overall been a positive month for local equity markets, ad a far stretch away from the extensive selling that occurred at the turn of the year. Aside from pushed back US interest rate expectations, the major reason why local equity markets have turned the corner is because of the improved price of oil. We personally saw the weekly close above $35 late in February for WTI Oil as a critical signal that not only has the price of oil likely bottomed out, but that further gains were likely ahead and the commodity managed to make its way to $42 before the month of March reached a conclusion.
As we enter Q2, we currently expect that the price of WTI Oil will continue to range mostly between #38 and $42 in the shorter-term. $44 is most likely the ceiling for WTI at present, while $35 is now viewed as a critical psychological support level. Sellers will be watching to see if WTI can close back below $35 for an opportunity to drag prices back down towards their milestone lows and while this is unlikely, longer-term purchasers will be waiting for a weekly close above $4 to receive encouragement that the commodity can attempt a climb towards $50.
After bouncing nearly $30 higher following another round of Dollar weakness following the comments from Federal Reserve Chair Janet Yellen on Tuesday evening, Gold nearly withdrew all of its gains during trading on Wednesday. We have now dropped back down towards $1220 as traders await the highly-anticipated US Non-Farm Payroll report on Friday, which should spell further volatility for Gold.
We personally do not expect sellers to price large decline into Gold until the metal closes back below $1200, meaning a strong US jobs report is required on Friday if you are looking for Gold to withdrawal the significant gains recorded during Q1. I personally think that there is still room for further Dollar weakness around the currency markets and that it is possible the jobs report this Friday could confirm to investors that it is unlikely that the Federal Reserve will even be able to raise interest rates twice in 2016. If this is the case, there is going to be further potential for Gold as we enter Q2.
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