Jakarta Composite Index ventures higher

Written by Lukman Otunuga, Research Analyst at FXTM

Indonesia’s Jakarta Composite Index concluded in gains on Tuesday despite the weak overnight cues from Wall Street. Shares in Indonesia could remain supported moving forward as the improving sentiment towards the nation boosts risk sentiment.

The main event risk for Indonesia this week will be Bank Indonesia’s interest rate decision which is expected to conclude with rates left unchanged in June. If the economic conditions in Indonesia continue to improve and core economic data follows a positive trajectory, Bank Indonesia could raise rates before the end of the year.

Focusing on the foreign exchange outlook, the USDIDR was volatile on Tuesday with prices trading around 13290. A vulnerable U.S Dollar may encourage bears to send the USDIDR towards the 13260 level.

It’s all about the Sterling

The Sterling nudged higher during Tuesday’s trading session as investors made an effort to accept the reality of last week’s shock UK election outcome which resulted in a nightmare “hung parliament”. Regardless of the current upside gains, the British Pound remains vulnerable to heavy losses with the outlook tilted to the downside as political instability in the UK weighs heavily on the currency. This period of uncertainty is likely to leave investors on edge as questions are raised over the impact the general election results will have on Brexit negotiations.

Are Sterling bears back in town?

The bearish price action on Sterling since the election outcome last week suggests that those who were passionately bullish on the currency could be having second thoughts. With Theresa May’s gamble to strengthen her hand ahead of the Brexit negotiations back firing and sparking chaos in Westminster, the British Pound remains vulnerable to further downside.

From a technical standpoint, the GBPUSD is heavily bearish on the daily charts. Previous support around 1.2775 could transform into a dynamic resistance that encourages a decline towards 1.2600.

Dollar edges lower ahead of FOMC

The main event risk for the Greenback this week may be Wednesday’s heavily anticipated Federal Open Market Committee statement. With the CME Group’s FedWatch tool showing a near 100% probability that the Federal Reserve will raise US interest rates in June, most of the focus may be directed towards when the central bank will next raise US interest rates in 2017. A lack of clarity from the Fed regarding future monetary policy and interest rate hike timings may pressure the US Dollar further. From a technical standpoint, the Dollar Index remains pressured on the daily charts. A breakdown below 97.00 should encourage a further depreciation towards 96.50.

WTI Crude hovers above $46

Oil prices were slightly supported during Tuesday’s trading session after Saudi Arabia stated that it would make export cuts in July in an effort to tighten oil markets. While short term bulls may benefit from the speculative boosts in prices caused by Saudi Arabia’s statement, this does not change the longer term bearish dynamics. With oversupply concerns a key theme, and there still being a risk of US Shale production sabotaging OPEC’s efforts to rebalance the oil markets, sentiment towards the commodity remains bearish. Technical traders may see the price fail to stabilize above $46 with repeated weakness below this level opening a path towards $45.