Global equity bulls fight back, dollar steady

February 7, 2018 09:13 AM

Investors experienced a renewed sense of confidence on Wednesday morning following Wall Street’s rebound overnight.

Asian stocks closed mostly mixed during early trading, while European shares ventured higher, as markets attempted to shake off the volatility and jitters witnessed in recent trading sessions. With the shocking levels of volatility limited to stock markets and not materially impacting currencies or commodities, the aggressive global equity sell-off could just be a steep correction. However, repeated weakness across stock markets may leave investors on high alert and on guard for something greater than a steep correction.

Dollar Index little changed

The dollar remained steady against a basket of major currencies on Wednesday, as investors diverted most of their focus towards the development happening across stock markets.  Sentiment towards the dollar received a boost last week, after the stronger-than-expected growth in U.S. wages fueled speculations of higher U.S. interest rates.

The Greenback has scope to appreciate further if economic data from the United States continues to beat market expectations. Taking a look at the technical picture, the Dollar Index has breached above the 89.50 lower high. The breakout above this level may encourage a further incline towards 90.00 and 90.55. Alternatively, a failure for prices to break above 90.00 could encourage a decline back to 89.50 and 89.00, respectively.

Commodity spotlight – WTI

WTI Crude found itself under noticeable selling pressure during Wednesday’s trading session, amid ongoing concerns over soaring U.S. production weighing heavily on oil prices.

Although oil markets were initially supported on Tuesday after the American Petroleum Institute (API) reported an unexpected weekly decline in U.S. Crude stocks, gains were later relinquished by the oversupply fears. While price action continues to suggest that oil still has some upside momentum, gains could be capped by rising U.S. output. Focusing on the technical picture, WTI Crude is at risk of depreciating towards $62.20 per barrel if bears are able to conquer the $63.00 support level.  In an alternative scenario, a breakout above $64.00 may re-open a path back towards $65 and $65.60.

Currency spotlight – EUR/USD

The euro/U.S. dollar (EUR/USD) currency pair edged lower during Wednesday’s trading session with prices sinking towards 1.2350 as of writing.

With the bullish sentiment towards the European economy stimulating an appetite for the euro, the EUR/USD remains heavily supported. From a technical standpoint, the EUR/USD is in the process of a technical correction on the daily charts with 1.2300 acting as a level of interest. Price remains above the 50 Simple Moving Average, while the MACD trades to the upside. A creation of a new higher low around the 1.2300 region could be in play, which may provide a foundation for bulls to elevate prices higher.  A breakdown and daily close below the 1.2300 level may inspire a decline towards 1.2180. Alternatively, if 1.2300 defends then the EUR/USD could venture back to 1.2440.


About the Author

Lukman Otunuga is an FXTM research analyst