Sterling displayed explosive levels of volatility during Wednesday’s trading session with prices violently swinging between losses and gains as anxiety heightened after Brexit was formally triggered. With investors on edge as Britain officially embarks on an irreversible quest to leaving the European Union, sterling may be instore for further punishment in the longer term as uncertainty dents buying sentiment. Although sterling has traded higher following the official triggering of Article 50, it must be kept in mind that hard Brexit fears remain rife with the EU’s demand for a £50 billion Brexit bill already adding to the horrible cocktail of potential complications in the early stages of the negotiations.
While most have suggested that Brexit has already been priced in, markets may be in for a rude awakening in the future, especially if sterling finds itself exposed to further downside shocks amid the rising uncertainty. There is a strong likelihood of the Brexit developments dictating where sterling trades in the medium to longer term with economic fundamentals almost becoming secondary. With the Brexit fears clearly bone-deep, sterling weakness may become a recurrent theme moving forward with upside gains limited.
From a technical standpoint, the GBP/USD has staged a modest rebound from the 1.2400 support and such has nothing to do with a change in the bearish sentiment. While sterling could edge higher in the shorter term as participants reposition, bears may exploit the technical bounce to install fresh rounds of selling. If bears manage to drag prices back below 1.2400 then a decline towards 1.2300 and potentially lower could become a possibility.
Dollar index eyes 100.00
Dollar bulls were on the offense on Tuesday with the greenback bouncing from 4-month lows after Federal Reserve officials suggested more rate hikes to come this year. The upside momentum was complimented by the impressive consumer confidence in March which soared to its highest level in more than 16 years. The fact that investors remain cautiously optimism over Donald Trump’s pro-growth economic policies despite the recent setbacks could offer some support to the dollar.
While the improving sentiment towards the U.S economy may translate to further upside on the dollar in the longer term, the lingering uncertainty over Donald Trump could still be enough to limit gains in the short term. From a technical standpoint, the dollar Index is still pressured on the daily charts but a break and daily close above 100.00 could be the first steps for bulls to reclaim back some control.
Commodity spotlight – WTI Crude
Oil markets received a slight boost on Tuesday with WTI Crude edging higher towards $48.80 after supply distributions in Libya and speculations of OPEC extending the output cut enticed bulls to install light rounds of buying. Regardless of the recent upside, oil prices remain gripped by the oversupply woes with the rapidly diminishing optimism over the effectiveness of OPEC’s supply cut limiting upside gains. While speculations may mount over the cartel extending the output cut deal in an effort to stabilize the saturated oil markets, the resurgence of U.S shale may simply counteract the cartel's efforts.
A build in the pending crude oil inventories report this evening could expose oil markets to downside risks as the oversupply concerns haunt investor attraction further. From a technical standpoint, WTI crude remains pressured on the daily charts with bears in firm control below $50. The current technical bounce could create a foundation for sellers to send WTI crude back towards $48 and potentially lower.
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