FXTM Research Analyst Lukman Otunuga comments on ongoing political tensions across the globe and their knock-on effect on markets.
Ongoing geopolitical tensions across the globe and heightened political risk in Europe have limited appetite for riskier assets this week, with global stocks now on the back foot. Asian share concluded in the red on Wednesday, as the uncertainty from world events left investors on edge.
Although European markets have displayed some resilience by opening higher this morning gains may be capped, especially if anxiety mounts ahead of the French Presidential elections.
With the overall trading mood subdued and participants adopting a cautious stance in this tense environment, Wall Street could struggle to venture higher this week.
Sterling Boosted by Mixed Jobs Report
Sterling received a slight boost on Wednesday, with short bulls in action after the mixed jobs report showed that the UK’s unemployment rate remained steady at 4.7% in the three months to February.
However, the upside was limited, as claimant count increased sharply by 25.5k in March while regular pay rose by a tepid 0.1% after accounting for inflation. With nominal earnings in the United Kingdom slowing to their weakest pace in seven months, consumer spending may be negatively impacted moving forward.
A drop in consumer spending power could reignite concerns over the sustainability of the UK’s consumer-driven economic growth, which may in turn create further headaches for the Bank of England.
Focusing on the foreign exchange outlook, the GBPUSD has staged a sharp rebound, with prices breaking above 1.2500 on the back of Dollar weakness.
The currency pair still remains in a wide range on the daily timeframe, with weakness back below 1.2450 opening a path towards 1.2370. In an alternative scenario, a decisive breakout above 1.2550 will signal an official breakout with bulls targeting 1.2650.
Trump in the Spotlight Again
The heightened geopolitical risks around Syria and North Korea have left markets tense this week and investors on high alert. Participants are in need of clarity on world events this week and as such, may encourage most to focus on Donald Trump’s aired interview on Fox Business Network.
For those who remain somewhat optimistic over Trump's fiscal policies, the pending interview could provide further insight on the market-shaking tax reforms and infrastructure spending. With Syria and North Korea developments likely to be discussed, this could be labelled as a high-risk event that sparks volatility.
The combination of profit taking, geopolitical concerns and overall uncertainty has exposed the Greenback to downside risks this week.
With short-term bulls still in control amid the expectations of higher US rates, the current Dollar decline could be treated as a technical correction. From a technical standpoint, the daily bullish outlook remains valid as long as the Dollar Index keeps above 100.25.
Commodity spotlight – Gold
The uncomfortable trading atmosphere created from geopolitical tensions and political risk has boosted Gold’s attraction this week, with prices sprinting to five-week highs. This yellow metal is firmly bullish on the daily charts, and further upside may be expected as anxiety accelerates the flight to safety.
From a technical standpoint, prices are trading above the daily 20 SMA, while the MACD has crossed to the upside. Previous resistance at $1260 could transform into a dynamic support that opens a path towards $1280 and potentially higher.