The Market Might Take Off on Hawk Wings

On Tuesday, Asian trading ended mostly up because the stocks of energy companies consolidated: the majority of Asia-Pacific region indexes were up 0.16-0.65%. Japan’s Nikkei 225 settled up 0.37% on the yen’s weakening against the US dollar. The USD/JPY pair successfully overcame the 112 mark and is still up; the pair might keep going up if Fed Chairman Janet Yellen is able to maintain the hawkish rhetoric.

Tuesday’s European trading was extremely unsettled because of the gradual recovery of the oil market and the speech by ECB head Mario Draghi, whose remarks were fairly upbeat about prospects for the Eurozone’s economic development.
Draghi talked about the possibility of using negative interest rates, buying bonds, and probably curtailing the infusion of money into the EU economy. The majority of investors were elated at this news: the EUR/USA pair locally tested the 1.13 mark, which was unexpected for the majority. But it was unable to stay at that level and faces a decline to 1.12 by the time of Yellen’s speech at 5:00 pm GMT and a continued downtrend in the first half of Wednesday. The pound sterling barely budged during trading: despite remarks by Mark Carney, head of the Bank of England, news of stricter control over British banks’ capital flows had no serious effect on the quote for the GBP/USD pair, which is trading around 1.277.
The rising euro and pound took a heavy toll on quotes on European indexes, which fell because of the resurgent currencies. The Euro Stoxx 50 lost about 0.67%, Britain’s FTSE 100 – about 0.16%, and Germany’s DAX – about 0.55%. Trading may take a turn for the better if Yellen makes hawkish statements about increasing the Fed’s rate before the end of the year and if the US dollar strengthens.

The oil sector is experiencing a little growth, despite concerns over global overproduction of oil in the United States. Brent crude is trading close to $47/barrel, while North America’s WTI is a little above $44/barrel. Crude managed to strengthen against a cheaper dollar, but we shouldn’t forget that on Wednesday investors will be looking for statistics on US oil inventories from the US Energy Information Agency (EIA).
Gold, like all the other reserve currencies, also got a boost from the weakening dollar: at the time of this writing gold is trading around $1249/oz, trending down. Last week’s highs for gold ($1257-1260) are unattainable for now, but a weak dollar might give gold an opportunity for long-term, albeit slow, growth.

Yuri Prokudin, Olymp Trade analyst

Olymp Trade Review