MARKETS: Cautious mood in week ahead

By Lukman Otunuga, Research Analyst at FXTM

The mood across financial markets is poised to remain cautious in the week ahead as investors grapple with geopolitical risks and concerns over slowing global economic growth.

We expect Dollar weakness to become a dominant market theme due to growing expectations over the Federal Reserve taking a pause on interest rates this year. Appetite towards the Greenback is seen diminishing further as investors assess the possible impacts of the 35-day government shutdown. Although a dovish Fed is seen supporting global equity markets, the upside is poised to be limited by geopolitical risks and ongoing trade developments.

In the currency markets, the British Pound will remain highly reactive to Brexit headlines while we see the Euro benefiting from Dollar weakness. While emerging market currencies are likely to appreciate on Dollar weakness, we see risk aversion capping any meaningful gains. In the commodity markets, WTI Crude will be pulled and tugged by conflicting fundamental themes. Gold is poised to shine with intensity as thanks to lower bond yields, a dovish Fed and most importantly, Dollar weakness.

It will be a relatively quiet week for financial markets data wise with ISM Non-Manufacturing PMI from the US released on Monday. In the United Kingdom, attention will be directed towards the Bank of England policy meeting on Thursday which is expected to conclude with monetary policy unchanged. With trade tensions and other geopolitical risks weighing on sentiment, volatility should still be expected across the board regardless of the light economic calendar.

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