Global stocks displayed subtle signs of stability during Friday’s trading session as investors re-evaluated the explosive Trump developments which rattled financial markets this week. Asian shares were a mixed bag amidst cautious trading while European equities edged cautiously higher. With the spiralling uncertainty over Donald Trump’s political future raising questions over his ability to deliver the heavily anticipated pro-growth policies, gains on Wall Street are likely to be limited.
It is becoming increasingly clear that the controversies blanketing Trump have left investors jittery with most seeking concrete answers to what the future may hold. Markets may turn extremely sensitive moving forward and any additional news on this Trump episode should spark more volatility.
Dollar bears are back in town
The greenback gasped for air on Thursday with prices temporarily reversing earlier losses after stronger-than-expected U.S. economic data diverted some attention away from the Trump woes. Short-term bulls were inspired further by the hawkish comments from Loretta Mester, CEO of the Federal Reserve Bank of Cleveland, which renewed expectations of a U.S. interest rate increase in June.
The fact that the dollar has found itself under renewed selling pressure on Friday continues to highlight how the focus remains on the political instability in Washington and growing uncertainty over the future of Trump’s administration. With those who were heavily optimistic over Trump's proposed fiscal policies now having second thoughts amidst this uncertainty, the dollar could become a seller’s best friend.
Sterling blocked by 1.30 gate keeper
Sterling smashed through the stubborn $1.30 resistance during Thursday’s trading session following the much better than expected British retail sales growth that quelled some Brexit concerns. Retail sales were resilient in April rising 2.3% despite consumers feeling the pinch from wage growth lagging behind inflation. Although short-term pound bulls may attempt to exploit the positive data and vulnerable dollar to elevate the GBP/USD higher, gains still remain limited, especially when factoring the growing uncertainty over Brexit negotiations.
From a technical standpoint, the GBP/USD still remains at risk of trading lower to 1.2775 if bulls fail to secure a solid daily close above 1.3000. In an alternative scenario, a daily close above 1.3000 should open a path higher towards 1.3250.
OPEC vs U.S Shale
Oil markets lurched higher on Friday as optimism grew over big oil-producing countries extending output cuts to stabilize the markets. Although OPEC may be commended on their ability to repeatedly boost the markets on production cut talks, the effects seem to be wearing out. Oil prices may be exposed to further volatility moving forward as the fierce tug of war between OPEC bulls and U.S Shale bears get underway.
While most expect production cuts to be extended until March 2018, I think it’s more of a question on how U.S Shale exploits this opportunity to pump more oil into the markets. From a technical standpoint, investors will be paying very close attention to how prices react to the psychological $50 level.
Commodity spotlight – Gold
Gold price traded higher during early trading on Friday and was on track for the biggest weekly gain since April as political unrest in Washington weighed heavily on risk sentiment. Although the metal experienced a sharp technical correction on Thursday, this had nothing to do with a change of bias. It came down to profit taking and a slightly appreciating U.S. dollar. Bulls still remain in control despite the depreciation with prices destined to appreciate higher as uncertainty quickens the flight to safety. From a technical standpoint, buyers need to secure a daily close above $1260 for an incline higher towards $1275.
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