Emerging Market Currencies Fight back as Risk Sentiment Stabilizes

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Emerging market currencies were back in demand on Wednesday as risk appetite stabilized after a dramatic tech fuelled selloff earlier in the week rattled financial markets.

Higher-yielding currencies like the Turkish Lira, South African Rand, and Russian rouble among many others bounced back to life amid the visible improvement in global risk sentiment. Although EM currencies have scope to extend gains this week, headwinds in the form of an appreciating Dollar and Fed hike expectations could obstruct upside gains. With trade tensions, slowing global growth fears, Brexit related uncertainty and Italy’s budget woes chipping away at investor confidence, EM currencies still remain in the crosshairs.

The Chinese Yuan fought back against the Dollar mid-week due to improving market mood with the USDCNY trading around 6.9260 as of writing. Repeated weakness below the 6.9300 level could invite a decline towards 6.9140.

Dollar steady ahead of Thanksgiving holiday

The Dollar has the potential to trade within a tight range for the rest of the trading week as bulls and bears take a pause to enjoy the Thanksgiving holiday on Thursday.

With the Federal Reserve expected to raise interest rates in December and the Dollar benefiting from safe-haven demand, the outlook remains bullish in the short to medium term. However, the longer-term trajectory remains open to question. Cautious comments from Fed officials have prompted market players to re-access the central bank’s hiking path beyond this year.

Focusing on the technical picture, the Dollar Index remains bullish on the daily charts. The breakout above 96.68 is likely to inspire an incline higher towards 97.00 and 97.18, respectively.

Any hope for Sterling to recover?

It has been a terrible trading week for the British Pound thus far as the horrible combination of Brexit related uncertainty and political risk in the UK dented buying sentiment towards the currency.

There is a sense of anticipation mounting ahead of the Brexit Summit on Sunday where UK and EU leaders are due to approve and sign off the Brexit deal. Even if a breakthrough is achieved with the EU, the next major obstacle will be for the Brexit agreement to be passed through parliament. With pessimism in the air over parliament approving any deal Theresa May brings forward, fears of a no-deal Brexit scenario are poised to intensify. With Brexit uncertainty and political instability both attacking Sterling from different directions, is there any hope for the currency to recover? The GBPUSD remains bearish on the daily charts with 1.2680 acting as the first point of interest.

Commodity spotlight – Gold

Ongoing trade tensions, slowing global growth fears and Brexit developments have provided Gold bulls with enough ammunition to maintain some degree of control. Although an appreciating Dollar and expectations of higher US interest rates will continue weighing on yellow metal in the longer term, the near-term outlook points to further upside. Technical traders will continue to closely observe if Gold is able to secure a daily close above $1228. A daily close above this level may encourage a move higher towards $1240.

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