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Markets enter standby mode

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Βy Lukman Otunuga, Senior Market Analyst at FXTM  

Asian stocks crawled higher on Wednesday, following the positive cues from Wall Street overnight after the S&P500 closed at its highest level in 2023. However, markets remain cautious despite hopes for stimulus in China with risk sentiment shaky after the World Bank’s warning on the global economic outlook.

Sentiment in Europe is cautiously positive despite the industrial production figures for Germany rising less than expected in April.

In the currency markets, the dollar seems to be on standby amid the absence of a fresh fundamental spark. Oil prices fell in the previous session, despite initially rallying on news of Saudi Arabia’s supply cut, while gold was little changed.

In other news, Australia’s economy slowed more than expected in the first quarter of 2023 as aggressive policy tightening took hold. GDP expanded 0.2% from the prior quarter, which was the weakest expansion since the third quarter of 2021.

Year on year, the economy grew 2.3%, cooling from a downwardly revised 2.6%. This disappointing report comes a day after the Reserve Bank of Australia surprised markets with a 25-basis point rate hike.

Aussie bulls seemed unfazed by the data, with the currency edging slightly higher. Taking a quick look at the technicals, AUDUSD is bullish on the daily charts with prices approaching the 200-day SMA around 0.6690. A solid break above this point may encourage a move to 0.6740.

Bank of Canada rate decision in focus

After the surprise 25bp hike by the RBA on Tuesday, all eyes will be on the Bank of Canada rate decision on Wednesday. While the central bank is not expected to hike rates, money markets are still pricing in a 46% probability of a rate rise becoming a reality.

It’s worth considering that the stronger-than-expected GDP and CPI data have supported expectations around the BoC keeping rates higher for longer. If the central bank surprises markets with a hike in June, the Canadian dollar could rally.

Talking technicals, the CAD has been one of the best-performing G10 currencies month-to-date, gaining over 1% against the dollar. USDCAD has found itself trapped within a wide range on the monthly, weekly, and daily charts with a potential breakout on the horizon.

With the current path of least resistance pointing south, it may be wise to keep an eye on how prices behave around the 1.3300 support.

Oil weighed by growth concerns

Oil prices were under pressure on Wednesday as concerns over global economic growth kept bears in the driving seat, following the initial bounce at the start of the week on Saudi Arabia’s pledge to cut oil production.

The commodity is likely to remain volatile as fears over the demand outlook clash with supply-side forces. Nevertheless, the scales of power seem to remain in favour of the bears, especially when factoring in how oil has shed roughly 12% year-to-date amid China’s uneven growth and the Fed’s aggressive rate hikes.

It may be worth keeping a close eye on the US weekly crude inventories report published later Wednesday which could influence oil prices. Another build in inventories could fuel downside losses, dragging WTI crude toward $70.

Gold in the Spotlight

Gold was steady Wednesday morning in the absence of a fresh fundamental catalyst.

Given how we have entered the blackout period for Fed speakers and the rest of the week is light on US data, the precious metal could remain trapped in a range.

Nevertheless, the OECD’s global economic outlook might inject some light into the precious metal ahead of the Fed decision next week. In the meantime, support can be found at $1935 and resistance around $1985.

 

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