Global stocks were searching for direction on Thursday following the sharp decline in oil prices that weighed on global sentiment consequently souring investor risk appetite. Asian shares concluded depressed mimicking recent losses from Wall Street as a combination of risk aversion and Yen’s resurgence encouraged bears to attack. In Europe, equities were mostly down after the sell-off in energy companies and could be exposed to further losses from Asia’s bearish domino. Wall Street swiftly relinquished short term gains on Wednesday amid faltering oil prices with American stocks potentially trading lower on Thursday as expectations fluctuate over the Fed raising US rates in 2016.

The stock market rally may be displaying its true colours with it becoming increasingly clear that sentiment remains a driver rather than fundamentals. Inflated expectations over central banks intervening have propped stocks higher while talks of easing Brexit uncertainties continue to attract investors to riskier assets. Although global stocks have risen to impressive levels, the worrying fundamentals of slowing global growth and overall uncertainty does question the sustainability of such a rally. It should be kept in mind that risk aversion remains rife while depressed oil prices weigh heavily on sentiment. Bears are on the prowl and the pending catalyst which could quell this rally should leave investors diligent.

WTI bears on the offense

Oil prices were left vulnerable to losses during trading on Wednesday following the unexpected build in U.S crude inventories which elevated concerns over the excessive oversupply in the markets. It is becoming increasingly clear that the oversupply woes have become a recurrent theme that could ensure oil prices remain depressed for an extended period. WTI is fundamentally bearish with further declines expected as Saudi Arabia incessantly pumps oil to meet summer usages. Concerns over slowing global growth have heightened fears that demand may be waning and such may add to the horrible cocktail that provides a foundation for bears to install a heavy round of selling.

Earlier in the week WTI was slightly uplifted by talks over a potential output freeze which created speculative boosts on prices. The appreciation was unsustainable with the decline being of no surprise as OPEC is notoriously known for holding meetings which conclude without a solution. Oil prices could remain buoyed ahead of the informal OPEC meeting in September but such may offer bears another opportunity to attack if the meeting concludes with no new measures taken. From a technical standpointWTI Crude is bearish, a breakdown below $41 could encourage a further decline towards $40.

Dollar sensitivity shakes markets

The Dollar has been flung on a chaotic rollercoaster ride with prices violently swinging between losses and gains as expectations fluctuate over the Federal Reserve raising US rates in 2016. During trading on Wednesday Dollar weakness rattled the currency markets but its resurgence today has suggested signs of sensitivity kicking in. Although sentiment remains bullish towards the Dollars, more sharp swings could be expected as anticipation heightens sensitivity. Investors may direct their attention towards Thursday’s  unemployment claims which could provide some clarity on the health of the US economy. The main focus this week for the States is the US retail sales report and a positive release could provide the Fed a compelling reason to raise US rates this year.

GBPUSD hits fresh monthly low

The Sterling/Dollar tumbled to fresh monthly lows at 1.2935 as a combination of Dollar’s resurgence and ongoing expectations over the BoE cutting UK rates to near zero encouraged investors to install a round of selling. Sterling remains under pressure with prices destined for steep declines if the post-Brexit uncertainty continues to haunt investor attraction towards the currency. Although UK data has been slightly mixed, the main focus is still on the effects of  Brexit to the UK economy with attention directed towards the Bank of England. The bearish sentiment towards the pound is a dominant theme which could extend through the end of 2016 consequently keeping prices depressed.

From a technical standpoint, the GBPUSD is bearish and the breakdown below 1.3000 could encourage a steeper decline towards 1.2800.