The forex market fresh layer of uncertainty was added to the Brexit woes on Monday following reports of Scottish first Minister Nicola Sturgeon demanding a new Scottish independence referendum between autumn of 2018 and spring 2019.
Forex market bombshell development comes at a time where speculations have heightened over UK Prime Minister Theresa May potentially triggering Article 50 on Tuesday. With Sturgeon on a quest to obtain permission from the Scottish Parliament for a second referendum via the Section 30 process, the rising anxiety may expose Sterling to downside shocks.
It should be kept in mind that the live threat of an independence vote in Scotland, destabilizing the United Kingdom, while it is in the critical process of leaving the European Union could weigh heavily on sentiment.
With the Brexit launch around the corner forex participants most likely will remain edgy from the terrible cocktail of uncertainty, revived hard Brexit fears and concerns of a Scottish referendum.
Forex Market will be paying very close attention to how the Brexit negotiations take place with any early complications exposing the unstable Sterling to further losses. Sentiment remains bearish towards the Pound and with the Brexit developments repeatedly limiting gains.
The sharp appreciation on the GBP/USD during early forex trading on Monday was likely attributed to Dollar weakness. The current technical bounce on the pair could provide a foundation for sellers to attack with targets stretching back towards 1.2100.
The recent bearish reports of U.S crude inventories surging to record highs have renewed the oversupply concerns ultimately exposing oil prices to downside risks this month. Oil markets remain vulnerable to losses moving forward with gains limited as optimism starts to wane over the effectiveness of OPEC’s production cut.
Although OPEC members may be commended on their attempt to stabilizing the oil markets by cutting production, the fact that oil prices are almost where they were when the initial production cut deal was announced is a major cause for concern.
Sentiment towards oil is firmly bearish and the threat of OPEC not renewing its production cut deal for the second half of the year could spell further depreciations for oil in the medium to longer term.
Oil market weakness should remain a dominant theme with the current price action suggesting that supply continues to outweigh demand and fears heightening over U.S shale destabilizing the OPEC production cut deal.
From a technical standpoint, WTI Crude is bearish on the daily charts as there have been consistently lower lows and lower highs. Previous support at $50 could transform into a dynamic resistance that encourages a further decline lower towards $47.
Dollar regains some ground
The rising prospects of higher US interest rates this year have supported the Greenback with bulls propelling the Dollar Index back above 101.00 during Monday’s trading session. Expectations have solidified over the Federal Reserve raising US interest rates this week following February’s solid NFP figure with investors seeking clarity on future rate hike timings.
If the economic projections of the FOMC members are bullish and suggest further US rate hikes this year then the Greenback may charge back above 102.00 in the short to medium term. From a technical standpoint, although the Dollar Index is slightly pressured on the daily charts, a breakout back above 101.50 could encourage an incline higher towards 102.00.
By Lukman Otunuga, Research Analyst.