Concerns of a renewed COVID-19 outbreak to dominate early market hours, US response to investor fears will provide short term directional cues. Fed speech also in focus.
Summary: As trading session opens for the week, key equities and indices across key global markets are bleeding profusely. While Wall Street closed on a positive note last week, it was still the worst weekly performance since late March, and the dovish rally continued steadily in Asian and European markets today.
Following reports hinting at possible renewal in the COVID-19 outbreak in the USA, the weekend saw the US announce fresh victim count of 25,000 cases with several re-opened US states seeing a high number of new victim counts. On Sunday, China reported a new outbreak in Beijing, while Tokyo, Japan, also saw a sharp spike in new victim count stemming from the re-opening of economic activity. This caused investor risk sentiment to turn sour in the market, leading to major risk assets declining sharply across key exchanges in the Asian market.
The European market took cues from the Asian market and opened on a dovish note, which was followed by major indices experience sharp meltdown as concerns of a possible renewed global COVID-19 outbreak effectively wiped out any lingering positive risk sentiment from recent recovery rally in the global market.
Precious Metals: Despite holding firm above key psychological support levels and increased caution in the market, rare metals such as gold and silver failed to see any gains today. As the ongoing global economic lockdown has created intense cash crunch, retail traders have almost entirely pulled out large scale investments and are regularly booking profits on their short term trading activity, keeping price trapped well within familiar price levels.
Crude Oil: The Crude oil price action in the international market displayed a clear dovish tone across both WTI and Brent benchmark indices in Asian and European markets. As recent developments by OPEC members had already hurt oil demand recovery considerably, the news of escalating fresh victim count in US and key Asian markets effectively shut down any progress in recovery outlook. This, along with increasing global inventory, albeit OPEC supply cut measures, paint a picture of glut once again, causing futures in the international market to trade down by 2%-3% in European market hours.
DXY: As risk aversion dominates the market, the US Dollar grew firm, and index value edged up above the 97 mark. But the index still holds firm below the 97.30 mark as support from major central bank and government covid-19 relief packages keeps both US and key global economies and their currencies fundamentally well supported for now.
On The Lookout: As yet another week’s trading session begins today, several key events come into investor focus. While Brexit trade deal talks have so far yielded no results, EU President Ursala is set to meet UK PM Boris Johnson to resume talks as there is little time left for the 2020 deadline extension, which seems highly unlikely at the moment. As UK is ready to leave the block without any deal as per comments from PM Johnson so far, unless the EU gives some level of concession or makes the UK agree to a timeline extension, UK will exit the bloc without a free trade agreement at the end of this year.
On the release front, the macro calendar remains silent in North American hours aside from speech by US Fed members Kaplan and Daly, while later in Pacific-Asian hours, there is the release of RBA meeting minutes to look out for.
Trading Perspective: Given the realisation of health advisors warnings of a renewed COVID-19 breakout in the US markets which have re-opened their economies, investor risk sentiment has declined, and caution rules the market. Futures trading in the international market saw a sharp decline earlier in the day, which suggests Wall Street is set to open lower and see major indices continue to decline. This creates a dovish rally unless the US government comes up with a move to help improve market mood from concerns surrounding the second large scale COVID-19 outbreak.
EUR/USD: The pair is mostly trading flat and holding firm around 1.125 handle amid cautious market mood today. While USD firmed up on concerns over the renewed covid-19 outbreak, it lacked the strength to offset EURO’s fundamentally supported gains. This has resulted in a lack of clear directional bias for both sides and price oscillating within 1.12 handle. Traders now await fresh cues from the US market for directional bias and short term profit opportunity.
GBP/USD: The pair traded mostly flat in Asian market hours pressured by Brexit woes and USD recovering some level of strength. But it has since gained stability above 1.25 handle and is trading positive as investors expect some progress during today’s meeting between high-level EU-UK officials. The pair is currently near the mid-1.25 handle. Traders are focusing on discussions related updates and cues from the US for short term directional bias.
USD/CAD: The pair is trading with a clear positive bias and has regained firm foothold above 1.3600 mark as risk aversion in the global market over the last couple of trading sessions helped USD bulls grow strong. Further, a sharp decline in crude oil price and demand outlook weighed down commodity-linked currency Canadian Loonie considerably causing pair to take on a bullish rally. Traders now await cues from the US market over increasing concerns of a renewed covid-19 outbreak and Fed speech for short term directional bias and profit opportunities.
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