In the coming weeks, we remain cautious of further equity gains, and anticipate a corrective pullback as money managers reduce their global equity allocations.
However, we are constructive in the longer term, as underlying strength suggests investors are currently maintaining a buy-into-weakness strategy.
The USD DXY Index remains under pressure, although a short-term corrective bounce is possible in the coming sessions as daily studies unwind oversold areas. There is no change in the weekly readings, however, and we anticipate further downside risks in the coming weeks.
As mentioned previously, the obvious beneficiary will be the EUR, with EUR/USD extending the anticipated corrective bounce. USD/CHF and USD/JPY are following the USD lower. The commodity currencies, AUD and CAD, are mixed – AUD/USD is coming under marginal selling pressure, whilst USD/CAD is turning lower.
GBP/USD is the current star performer, with prices maintaining the sharp bounce from the 1.2000~ lows of mid January. We see scope for further gains in the coming weeks, and are now monitoring the longer term monthly charts, as there are early signs of a trend change developing.
Collectively, this suggests investors will maintain a USD stance, whilst sentiment in GPB/USD continues to improve.
Another mixed story in the space. Gold is now coming under pressure, following the recent bounce, whilst Oil prices remain balanced in range. There is risk of a short-term pullback in the Energy space, however, but the dominant bull trend is intact, and we expected investors will use weakness as an opportunity to increase exposure. Copper prices are pressuring range highs, and whilst a short-term pullback is possible, we see further price gains in the coming weeks. There is a similar story developing in Corn , as prices turn back from Fibonacci resistance. However, investors are expected to continue increasing exposure in Base Metals and Agriculture.
All in all, we see increased downside risks in global equities and risk of deeper USD reactions. There are early signs of improvement in GBP, however. The space is expected to continue benefiting from cross asset rotation, as money managers move their extra USD into Copper and Corn . Gold and Oil will likely benefit following a corrective pullback.