Oil bears on strong wicket after Opec disappointment

A strong sense of disappointment had a punishing effect on oil markets on Thursday with prices tumbling five per cent after the Opec underwhelmed participants by renewing an agreement to cap output by 1.8 million barrels a day until March 2018. With the resurgence of US shale obstructing Opec's efforts to quell the oversupply woes this year, most investors were hoping for deeper cuts to effectively rebalance the saturated markets.
There is now a growing threat of the nine-month supply cut extension leaving oil prices at the mercy of inventories and US shale likely to exploit this well-presented opportunity to seize more market share from Opec members. With the oil glut potentially returning with a vengeance once the Opec deal expires in nine months, oil weakness may be destined to become a dominant theme in the medium to longer-term.
The price action seen in oil suggests that markets are clearly not impressed with the Opec's decision and further weakness should be expected as the oversupply fears bite. From a technical standpoint, WTI crude is heavily depressed on the daily charts. A breakdown below $48 should provide encouragement for bears to challenge $46.
Sterling gripped by uncertainty
Sterling found itself vulnerable to heavy losses on Friday after a poll showed a narrowing lead for Conservatives against the Labour opposition ahead of next month's general election. The threat of Theresa May failing to secure a landslide election victory should weigh heavy on sterling moving forward as anxiety heightens over her ability to strengthen her hand in the Brexit negotiations. With political uncertainty likely to heighten ahead of the UK general election on June 8, sterling could become even more attractive to bears.
Focusing away from politics, sentiment towards the UK economy took a hit on Thursday following reports showing gross domestic product (GDP) growth decelerating more than the initial estimate in the first quarter of 2017. The visible deceleration in economic growth is a clear sign of Brexit negatively impacting the UK as rising inflation and tepid wage growth drains consumer confidence.
Sentiment is turning increasingly bearish towards the pound with further downside expected as sellers exploit the Brexit anxiety to attack. From a technical standpoint, the GBP-USD is under selling pressure on the daily charts. A decisive break down below 1.2850 may open a path towards 1.2775.
Dollar vulnerable to losses
The greenback has been on the back foot for the most part of this week with upside gains limited following May's Federal Reserve meeting minutes which was dished with a dovish undertone. With US economic data following a mixed pattern and Trump uncertainty still a dominant theme, there is a layer of uncertainty over the longer-term hiking path.
As the Federal Reserve is set to maintain a defensive stance until the US economy displays signs of stability, there will be an increasing focus on hard economic data. With US economic data in focus, much attention will be directed towards the pending US GDP report on Friday which has the ability to empower the dollar bears if GDP fails to meet expectations.
Gold bulls breach $1,260
Gold was firm on Friday with prices breaking above $1,260 as investors mulled over the tone of caution in May's Federal Reserve meeting minutes. Although expectations are high that there will be a US interest rate increase in June, the longer-term hiking path remains uncertain, consequently weakening the greenback.
With uncertainty over Trump likely to impact the Fed and pressure the dollar further, gold should remain buoyed moving forward. From a technical standpoint, the yellow metal is regaining momentum on the daily charts, with bulls pressuring the $1,260 resistance. A breakout and daily close above $1,260 should encourage a further incline higher towards $1,275.
The writer is research analyst ?at FXTM. Views expresed are his own and do not reflect the ?newspaper's policy.