MARKETS: Dollar softens ahead of Yellen speech

Although initially the inflated expectations over the possibility of a US rate rise in April offered the Dollar bulls a welcome boost, this seems to be wearing off with the Dollar Index displaying signs of exhaustion. Even if Friday’s NFP report exceed expectations, the unstable global environment which has exposed the US economy to downside risks may sabotage the Fed’s efforts to raise US rates abruptly in April. The Dollar remains under pressure and with the current Fed futures pointing to an 88.5% chance that US rates will be left unchanged in April, bearish investors should exploit this opportunity to attack the Dollar at any given chance.

The Dollar Index is bearish on the daily timeframe as there have been consistently lower lows and lower highs, while the MACD trades to the downside. Prices are trading below the daily 20 SMA with the current downwards momentum pointing to a potential decline towards 94.00. This correction may encourage bearish investors to act with potential previous support around 96.50 acting as a dynamic resistance which should invite a steep decline towards 94.00.

Stock markets capped

Stock markets displayed signs of exhaustion during trading on Monday following the decline in oil prices which weighed on sentiment and dampened investor risk appetite. US markets struggled into green territory as expectations of a potential April interest rate rise and heightened caution ahead of the NFP on Friday encouraged investors to seek safe-haven assets. Although Asia initially showed signs of resilience on Monday, the risk aversion which continues to strengthen the safe-haven Japanese Yen has left the Nikkei depressed consequently pulling Asian equities lower. With oil prices declining and risk aversion rife, Europe may be poised to open lower especially after being infected from Asia’s bearish domino.

Sterling under pressure

Sterling experienced modest gains against the Dollar during trading on Monday, but investors must be under no impression that this has anything to do with an improved sentiment towards the GBP. Sentiment towards the pound is heavily bearish and concerns over the impact of a Brexit to the UK economy continue to haunt investor attraction towards the currency. Overall domestic data remains lackluster and with inflation showing little signs of growth, the Bank of England has been provided with yet another reason to keep UK rates unchanged. As the EU referendum vote looms, volatility may likely intensify in favour of the bears and this should provide sellers an opportunity to send the pound lower.

The GBPUSD has been bruised by the bears and may receive further punishment as ongoing Brexit concerns diminish investor attraction towards the currency. Prices have found some comfort above the 1.41 support, but may be poised to decline later in the week as the bearish pressure mounts. From a technical standpoint, prices are trading below the daily 20 SMA, while the MACD has crossed to the downside. A break below 1.41 should open a path towards 1.40 and potentially lower.

Commodity spotlight – Gold

Gold bulls were offered a lifeline in the form of the $1210 support on Monday as renewed risk aversion and Dollar weakness boosted the precious metal’s allure. There is some skepticism about the possibility of US rates being hiked in April and this may fuel Gold bulls to send prices back towards $1250. Janet Yellen will be speaking on Tuesday and if a dovish hint is detected then gold could be provided with the foundation needed to break away from the $1210 support ahead of the NFP on Friday. From a technical standpoint, a break above $1223 may open a path back towards $1250 and potentially higher. Bulls remain in control as long as prices can keep above the key $1200 support.

Source: Financial Mirror