Monday kicked off on a cautious note as Asian and European markets struggled to shake off the pounding hangover from the brutal selloff on Wallstreet late last week!
Given how there was no specific trigger to the hefty selloff witnessed on the S&P 500 and Nasdaq, most simply labelled it as a ‘healthy pullback’. While this could be the case, it does not change the fact that stock markets have become detached from economic reality.
There was just something troubling about the Pound on Monday. These suspicions were later confirmed on Tuesday onwards after the GBPUSD nosedived over 400 pips thanks to Brexit related drama and uncertainty. Interestingly, FXTM’s trader's overall sentiment is long on the currency pair as of writing.
As US markets returned from a long weekend break, the reality check of darker nights and party eventually coming to an end started to hit home.
In the commodity arena, Crude Oil retreated below the psychologically-important $40/bbl level thanks to concerns over the waning demand for Oil.
Looking at our mid-week technical outlook, we discussed the possibility of Dollar bulls making a comeback after the Dollar Index (DXY) jumped to a fresh four month high above 93.60. However, gains were later capped by a surging Euro which accounts for roughly 57% of the DXY weighting!
Speaking of the Euro, bulls were injected with a renewed sense of confidence after ECB President Christine Lagarde played down concerns about the currency's strength.
The Euro has appreciated against every single G10 currency this week with the EURUSD finding comfort above 1.1815 as of writing. FXTM’s trader’s overall sentiment is long on the currency pair as of writing. Looking at the technical picture, a weekly close above 1.1825 could inspire an incline towards 1.1965.
As the week slowly comes to an end, anyone else wondering whether there will be more bumps ahead for US stocks? Investors are evaluating the prospects of another round stimulus before the November elections while coronavirus cases continue to rise in some major states. With the “Fear Index” (VIX) already punching above 30.00 this month, is this an early warning for turbulence ahead? Time will tell.
Commodity spotlight – Gold
Over the past four weeks, Gold has traded within a wide range with support at $1910 and resistance at $1985.
Regardless of the choppiness, the precious metal remains supported by low-to-negative government bond yields, rising coronavirus cases in the United States and a tired US Dollar. On top of this, the Federal Reserve’s policy shift to let inflation rip may provide Gold a tailwind as interest rates remain lower for an extended period. Additionally, rising inflationary pressures could erode the Dollar’s purchasing power, meaning Gold holds its value while the Greenback depreciates.
Looking at the technical picture, a breakout/down opportunity is in play with $1910 and $1985 acting as key levels of interest. Weakness below $1910 may trigger a drop towards $1890 and $1865, respectively.
Alternatively, a breakout above $1985 may open the doors towards $2000 and possibly $2074.
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