Markets on the defense ahead of ECB, FXTM report


Written by Lukman Otunuga, Research Analyst at FXTM

Euro bulls have struggled to maintain dominance this week with most EUR pairs hovering between losses and gains as uncertainty heightens ahead of Thursday’s European Central Bank meeting. The events across Europe this week simply exposed the Euro to explosive levels of volatility with the awful mixture of political instability in Europe and rising uncertainty denting risk sentiment. Investors may direct their attention towards today’s ECB meeting to attain further clarity over the health of the European economy and procedures to moderate the risks from Italy’s referendum. With expectations rising over the ECB extending its QE programme amid the uncertainty, sellers could exploit this opportunity to send the EURUSD lower. From a technical standpoint, bears need to defend the 1.085 resistance for sellers to drag prices back towards 1.070.

Dollar bulls on standby

The Dollar traded lower during trading on Wednesday as market participants adopted a cautious stance ahead of next week’s heavily anticipated FOMC meeting. With the Fed watch tool displaying a strong 95% probability of a rate increase in December, most attention has been directed towards the frequency of rate hikes in the New Year. Sentiment remains bullish towards the Dollar with the repeated comments from Fed officials about their optimism over the health of the US economy ensuring the Dollar remains buoyed. With the Trump effect still somewhat empowering the Greenback, further inclines could be expected in the medium to longer term as expectations of fiscal stimulus measures attract bullish investors.

Sterling weakness a recurrent theme

Sterling bears were on the offense during trading on Wednesday following the soft Industrial Production data which rekindled the ongoing Brexit fears. Industrial production tumbled 1.3% in October while manufacturing declined 0.9% ultimately triggering concerns of the Brexit saga negatively impacting the UK economy. Sterling vulnerability remains a dominant theme with the toxic mixture of Brexit anxieties and overall uncertainty haunting investor attraction towards the currency. From a technical standpoint, the GBPUSD is depressed on the daily timeframe with a breakdown below 1.2600 encouraging a steeper decline towards 1.2500.

WTI Crude in the red

WTI Oil experienced sharp losses on Wednesday as concerns over OPEC’s record high outputs for November revived the oversupply woes. The sharp rise in crude oil inventories added insult to injury with bears exploiting this opportunity to drag oil prices lower. Investors have started to digest the OPEC reality with the effects of last week’s expectation-defying production cut deal warring off. Fears continue to heighten over OPECs ability to fulfil the promised 32.5 mbpd production ceiling while scepticism is on the rise towards the success of the pending OPEC and Non-OPEC meeting on the 10th of December. If pessimism persists over the production cuts and oversupply anxieties heighten then WTI could be exposed to steeper losses moving forward.

Commodity spotlight – Gold

Gold experienced a light rebound this week and this has nothing to do with an improved sentiment towards the metal but profit taking ahead of next week’s FOMC meeting. This zero-yielding metal remains extremely vulnerable to losses amid the resurgent Dollar with the probable rate hike this month enticing sellers to attack incessantly. From a technical standpoint, previous resistance around $1190 could transform into a dynamic resistance that sparks a steeper selloff towards $1150.

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