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29th June | Dubai
By Lukman Otunuga, Research Analyst at FXTM
The fundamental reason why oil has remained depressed for such a prolonged period lies in the high global crude inventories. As long as the oversupply woes remain a dominant theme, the bearish sentiment towards oil should ensure sellers maintain control. Although WTI Crude edged higher during Wednesday’s trading session, this technical bounce may provide a platform for bears to install renewed rounds of selling. This remains a critical period for the oil markets especially when factoring in how the extended periods of low prices and US Shales resurgence could cause OPEC’s output cut deal to fall apart. A technical bounce on oil may be on the cards with traders observing how prices react to the daily 20 SMA which is coincidentally at $45.
Dollars bears inspired by IMF
The last remnants of the once phenomenal Trump rally were thoroughly crushed on Tuesday after the International Monetary Fund (IMF) trimmed its growth forecast for the US economy amid uncertainty over White House policies. Although US President Donald Trump has, on repeated occasions, stated that he will “make America great again” the IMF seems unconvinced as it cut growth forecast for the US economy to 2.1% in 2017 and 2018. With the world’s largest economy struggling to hit Trump’s 3% GDP target as it confronts issues ranging from an ageing population to low productivity, sentiment is likely to take a hit with the Dollar finding itself under renewed selling pressure.
GBPUSD pops above 1.2775
Sterling bulls were gifted an unexpected lifeline on Tuesday in the form of Nicola Surgeon putting the Scottish independence referendum bill on hold. With the delay of the proposed referendum reducing some political risk at home, the Pound was given room breath. A weak Dollar played a role in the GBPUSD’s rebound as prices sprung towards 1.2850. While short-term technical bulls may have won the battle this week, the war still rages on with Brexit woes likely to limit gains in the medium to longer term.
Draghi inspires Euro bulls
Euro bulls were unstoppable during Tuesday’s trading session following the firmly hawkish comments from European Central Bank President Mario Draghi which boosted confidence over the health of the European Economy. With “deflationary forces being replaced by reflationary ones,” speculation has mounted over the central bank potentially tapering QE in the future. Although the central bank president still highlighted that the inflation dynamics remain muted, there is optimism that the current factors hindering inflation are transitory and as such the Euro found further support. A vulnerable US Dollar complimented the EURUSD’s upside with prices bursting above 1.1300. Technical traders could exploit the decisive break above 1.1300 to target 1.1450.
Commodity spotlight – Gold
Gold bulls were unrestrained during Wednesday’s trading session with prices clipping $1252 as the combination of Dollar weakness and risk aversion boosted the metal’s safe-haven allure. The sharp losses observed at the start of the week have almost been clawed back with bulls eyeing $1260. With the ongoing uncertainty of Brexit, political risk in Washington and jitters from depressed oil accelerating the flight to safety, Gold is likely to remain supported moving forward. Technical traders will be paying attention to how the metal behaves above $1250. A daily close above $1250 could encourage a further incline towards $1260.
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