Monday, 30 May 2016

Dollar bulls are back in town

Written by Lukman Otunuga, Research Analyst at FXTM
The Dollar sharply appreciated across the board during trading last week following Janet Yellen’s firmly hawkish comments which elevated expectations over the Fed raising US rates in Q2. With a hike probable in the coming months if US data follows a positive path, sentiment towards the US economy continues to improve, and this may empower the Dollar bulls further. Although US Q1 GDP slightly missed expectations at 0.8%, this was still an upwards revision that could amalgamate with other positive data to provide a compelling reason for another US rate hike in the coming months. Yellen’s unquestionably hawkish comments have acted as a catalyst for bulls to install a heavy round of buying and this buying could amplify if Friday’s NFP results exceed expectations. Since it may be a very bold move for the Fed to raise rates abruptly in June before the E.U referendum vote, there is a very strong likelihood that July could be the golden month that US rates are hiked.

With the Dollar bulls rampaging as expectations heighten over another US rate hike; the Dollar Index has turned firmly bullish on the daily timeframe. Prices are trading above the daily 20 SMA while the MACD has also crossed to the upside. The current momentum is strong and could take prices above 96.00 towards 97.00. It should be remembered that the speculative boosts in rate hike expectations are the driving force behind this upsurge which could take prices to unfathomable levels.

Global stocks surge

Global stocks ventured into green territory during trading last week following the hawkish comments from Janet Yellen that renewed risk appetite and consequently encouraged investors to seek riskier assets. Asian equities surged with ferocity during trading on Monday as the rising speculations that Japan would delay a sales tax coupled with a weakening Yen offered a welcome boost to the Nikkei. Although most major markets may be closed for bank holiday Monday, this renewed risk appetite could cause stocks to open positive as the week progresses. With the dominant theme of renewed US rate hike expectations elevating global sentiment, stocks could be poised for further gains in the short term. While this could be the case, it should be remembered that concerns over the global economy linger in the background while the hidden anxieties towards the impact of a Brexit echo in the distance.

WTI crude trapped below $50

WTI Crude bulls have found it increasingly difficult to breach above the psychological $50 resistance despite the short-term declining oil productions that offered inspiration of bullish investors to install a round of buying. Although this appreciation in oil prices is commendable, the foundation behind the bounce was only temporary and prices could decline when the oversupply woes haunt investor attraction. Sentiment remains bearish towards oil and if the pending OPEC meeting leaves investors empty handed without a production freeze agreement, bears could exploit this opportunity to send prices lower. It is already widely known that Iran remains on a quest to reclaim lost market share and this could weigh heavily on bulls. From a technical standpoint, $50 is a key resistance and if bulls fail to break above this level then the only way could be down.

Commodity spotlight – Gold

Gold bears are on a rampage with prices plummeting towards $1200 during trading on Monday as optimism grows over another US rate hike in Q2. This metal has been punished considerably during trading this month and an appreciating Dollar simply adds to the pain. Bears have received encouraged to send prices much lower with the hurtful combination of Dollar appreciation, rising rate hike expectations and renewed risk appetite providing a foundation for another heavy round of selling. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. A decisive breakdown and daily close below $1200 could breach the flood gates with $1160 as a target.


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