Complex Made Simple

With the US dollar slipping, has the UAE dirham topped?

As the financial markets unwind for the final days of trading this month, the USD has been seen as the major loser of the financial markets for May. The USD has slumped lower against the overwhelming majority of its trading partners throughout the month following the controversy surrounding President Donald Trump and his sudden dismissal of FBI Director James Comey, which resulted in market expectations turning negative on the Greenback.

With the negative USD sentiment in mind, the question has to be asked as to whether the AED could have possibly topped against its counterparts? My personal opinion is that there is going to be an air of uncertainty surrounding the USD for some time, therefore there is reason to support the view that the Dollar itself has reached a “top” and this will be the same for those currencies pegged to the Dollar.

The international view is that the EU economy is finally looking like it has turned a corner, which is going to encourage further buying interest in the Euro and consequently means that the AED could slip against the Euro. I am currently neutral on the Japanese Yen, although a lack of optimism around the likelihood that Trump will be able to push forward his legislative reforms will reopen the debate over whether the Yen will once again benefit from safe-haven buying during the second half of 2017.

The one currency where I think there are prospects for the AED to move higher is against the British Pound. This is mainly because the market is still seen as being bearish on the Pound with an impending General Election just under two weeks away representing another political risk and the prolonged Brexit uncertainty remaining in the air.

Oil markets remain pessimistic on OPEC outcome

Investors remain unimpressed with the outcome of the OPEC meeting late last week, with the commodity once again encountering selling pressure around $50. The view is that the OPEC meeting outcome was very predictable with investors pricing in a nine-month extension to the production cut some time ago, and confirmation of what was already expected beforehand just led to a “sell-on news” opportunity for traders.  I maintain the viewpoint that the mindset of investors will remain tilted towards sell-on rally opportunities, and I think traders are likely to continue entering selling positions around $50 as they have done for a number of months.

The negative expectations on the oil markets are not due to a lack of effort from the side of OPEC, it is more linked to the belief that US Shale producers will turn the volume up on increased production. The ongoing threat to investor sentiment when it comes to the oil markets is that no matter what OPEC try to do to rebalance the ongoing oversupply in the markets, US Shale producers will be able to offset the efforts by increasing inventories from their side.

Can Gold keep its feet above $1260?

Gold managed to conclude trading last week above $1260, and the outlook is that there is room for further appreciation towards $1275 as long as the precious metal is able to keep its feet above $1260. There are a couple of factors that can encourage a supportive view towards a stronger valuation in Gold over the coming weeks, including the probable US interest rate increase in June already being priced into the financial markets and any market uncertainty over the impending UK General Election encouraging a rally for safe-haven assets.