By Lukman Otunuga, Research Analyst at FXTM
.jpg)
The market-shaking, risk-on rally displayed early signs of exhaustion early on Friday, with global stocks on the retreat as geopolitical concerns kept investors anxious. Asian equities were vulnerable to losses amid the cautious trading sentiment, with negative momentum already limiting gains in European markets.
With Donald Trump’s recent warning of a “major, major conflict” with North Korea adding to jitters this week, the upside on Wall Street may face headwinds Friday afternoon as participants start to scatter from riskier assets back to safety. With uncertainty still a dominant market theme and questions already being raised over Trump’s ability to move forward with his proposed tax reforms, further upheaval could expose stock markets to downside shocks.
UK GDP disappoints on Q1
Sterling/Dollar was volatile on Friday, following the release of a disappointing first quarter UK GDP figure of 0.3%, reviving concerns that the UK is struggling to recover from its Brexit hangover. Sterling’s Brexit-induced weakness has negatively impacted one of the major drivers behind the UK’s economic growth as rising inflation pressures consumers.
The threat of rising inflation impacting consumer spending could spark speculation that economic growth will decelerate in the future. With Friday’s soft economic release adding to the Brexit woes, sentiment towards the vulnerable Sterling could take another hit. From a technical standpoint, the GBPUSD has broken above 1.2875 with the next level of interest at 1.3000. In an alternative scenario, weakness below 1.2775 may open a path back towards 1.2600.
Mario Draghi strikes again
The Euro bears were unleashed on Thursday, after Mario Draghi swiftly quelled heated taper tantrum expectations with his dovish rhetoric. Although the European Central Bank displayed a touch of optimism when discussing the Eurozone’s economic recovery, its monetary stance remained somewhat dovish. While the Eurozone recovery has become increasingly solid and downside risks have diminished, some external, global risks and uncertainty that may force the ECB to remain on the defense still remain.
The next event risk which may spark extreme levels of volatility on the Euro will be the second round of the French presidential elections on May 7. Although a victory by Emmanuel Macron may seal the deal for the Euro bulls with the EURUSD lurching towards 1.100, parity on the EURUSD still remains a possibility in the event of an unexpected victory by Marine Le Pen.
Gold balances on thin ice
The growing appetite for risk has exposed Gold to downside losses, with prices hovering around $1,260. Bears benefitted from the risk-on trading environment this week and have ensured the yellow metal remains depressed below $1,280. Although ongoing geopolitical tensions and Trump uncertainties may support Gold in the longer term, there is still a live possibility of short term bears conquering the $1,260 level.
Much attention will be directed towards the Q1 US GDP report published later on Friday, which could impact where Gold concludes this month. A soft US GDP figure will have the ability to weaken the Dollar and trim rate hike expectations, ultimately supporting the yellow metal. From a technical standpoint, a breakdown and daily close below $1,260 should encourage a further decline towards $1,240. In an alternative scenario, bulls need to keep above $1,260 for a further incline back towards $1,280.
For information, disclaimer and risk warning note visit www.ForexTime.com
The FXTM brand / ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), FT Global Limited is regulated by the International Financial Services Commission (IFSC)
