MARKETS: Risk aversion over slow growth, oil declines

An unappetising combination of elevated concerns over slowing global growth and incessant declines in oil prices have activated a wave of risk aversion that engulfed the markets this week.

Stocks have been left heavily depressed with most major markets subdued as risk appetite sours amid the ongoing instabilities, while safe-haven investments such as the Japanese Yen received a handsome boost. European equities descended into the abyss on Thursday and may be poised to sink lower following the ECB minutes which highlighted a deteriorating outlook for the global economy. Asian markets could be left under immense pressure as fading expectations that the BoJ will intervene to weaken the Yen, coupled with the strengthening Japanese Yen, should consequently leave Asian stocks capped. American markets were punished all week and the bearish domino expected from Europe later Friday may offer an opportunity for sellers an opportunity to send most major stocks lower.
This week’s market decline should be of no surprise following the IMF’s meek global outlook that renewed fears of slowing growth, while the dovish Fed minutes which pointed to instabilities dragged most investors back to reality. If this was not enough, then the heavy declines in oil prices exacerbated investor concerns with confidence towards the global economy taking a hit as risk appetite soured. What complicates this situation further is that we live in a period where unorthodox central bank interventions have skewed the financial markets with reaction to monetary policies almost having an opposite effect. Fears are lingering that central banks may have entered a phase of desperation to stabilise the financial turmoil and this should send stocks lower in the longer term as investors scatter away from riskier assets.

Yen bulls rattle currency markets

The growing fears over the state of the global economy combined with fading expectations of further intervention from the BoJ have installed Yen bears with inspiration this trading week with the currency hitting a 17-month high against the Dollar. This sharp appreciation of the Yen may continue to punish the Japanese economy that is engaged in a losing battle with inflation, while global developments continue to expose the nation to downside risks. With Japan’s export competitiveness diminishing as the Yen surges, the BoJ could be under some pressure to intervene in the future. Japan is a rare scenario; although the sentiment towards the Japanese economy is heavily bearish I am bullish on the Yen.
From a technical standpoint, the USDJPY is heavily bearish, as there have been consistently lower lows and lower highs. Prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support around 111.00 could become a dynamic resistance later this month for another decline towards 105.00.

ECB uncertainty

The latest ECB minutes displayed a worrying divide in the decision to unleashing aggressive stimulus measures as a tool to boost Eurozone growth. This comes at a time when global anxiety is elevated with falling commodity prices sabotaging Eurozone inflation. Expectations may continue to mount that the ECB may unleash further stimulus measures in a desperate bid to weaken the Euro, but in this case Euro bulls could gain inspiration as the ECB finds itself in a similar situation to the BoJ.
Although the EURUSD has found comfort in a modest range in the first weeks of April, this pair is still bullish on the daily timeframe. A catalytic mixture of Dollar vulnerability and Euro appreciation could offer the platform for another incline towards 1.150. From a technical standpoint, pieces are trading above the daily 20 SMA while the MACD has crossed to the upside. A decisive breakout above 1.140 should open a path towards 1.150.

Sterling punished

Sterling was dealt a brutal lashing this week following the violent combination of risk aversion and Brexit anxieties which encouraged bearish investors to attack the currency pair. Sentiment is heavily bearish towards the pound and with uncertainties mounting as the EU referendum looms, investor attraction should diminish further, consequently providing a platform for more selloffs. If the Brexit fears were not enough to keep prices depressed, then the rapidly fading expectations of the Bank of England raising UK rates anytime soon should provide further encouragement for bears to install another wave of selling momentum.
This week, the GBPUSD plummeted over 250 pips and may be poised to decline further in April as the horrible cocktail of events mix in the favour of the bears. From a technical standpoint, this pair is bearish as there have been consistently lower lows and lower highs, while the MACD trades to the downside. Previous support at 1.4100 could transform into a dynamic resistance for a further decline to 1.3850.

WTI below $38.50

The crude oil saga continues with prices venturing towards $38.50 ahead of the cartel meeting in Doha, which most anticipate will conclude unsuccessfully. As events unfold, it feels like major oil players have no intention of cutting supply, but are instead looking to exploit the explosive levels of volatility in the markets to generate speculative boosts in prices. Even if an output freeze deal did materialise, it would occur at a point when production was at record highs, in an already heavily saturated market. WTI is fundamentally bearish and with Iran on a quest to reclaim lost market share amid deal talks, prices could be set for another decline once the technical bounce comes to an end.
From a technical standpoint, WTI Oil is bearish on the daily timeframe and the daily 20 SMA could act as a resistance for another decline back to $35.

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