Sentiment Shift Towards Risk Off
Last week saw market sentiment shift towards risk off as Fed Chair Powell testified before the Senate banking committee in Washington DC where he outlined that the path ahead for the US economy will be challenging.
The DXY closed above the 97.00 handle last week but has since retraced as USD pares some of its gains coming into this trading week. Asian bourses started the week cautiously as market sentiment was overrun with reports of increasing Covid-19 cases. With the state of Florida seeing the largest daily increases in cases since the start of the pandemic and the Germany reproduction rate increasing from 1.29 to 2,88, fears continue to grow over a second wave.
In light of this, PM Johnson is likely to announce new easing plans as movement around the nation begins to pick up. He is set to relax the 2-metre social distancing rule and impose a more relaxed restriction for restaurants, pubs and schools which is set to take effect from July 4th. This comes as Health Secretary Hancock suggested that customers may be required to register when visiting these locations.
UK Chancellor Sunak is also planning to announce fresh stimulus measures next month as he and his team also look to carry out an emergency VAT cut, this will involve a potential reduction in the headline rate and zero rates on products for a specified period. The UK seem set to weather a turbulent time ahead as the economy looks bleak.
Last week saw the BOE announce that the asset purchase facilities will be increased by £100bln though the pace at which assets will be purchased will be slowed, this is likely to affect the short term sentiment on these assets and as a result GBP experienced heavy selling in the latter part of last week with cable falling to three week lows. Investors will be looking to analyse these effects as well as grappling with Brexit related uncertainties.
WTI Crude Oil
WTI Crude Oil’s bull run continued last week as WTI rallied to test the $40/bbl. mark once more before retreating. This came following the OPEC-JMMC meeting where Iraq and Kazakhstan both submitted proposals highlighting how they will compensate for overproduction, though the committee were forced to delay the press conference to this week after Angola and Nigeria were yet to submit proposals on compliance.
Optimistic comments from Saudi Aramco’s CEO also lifted spirits as he stated that signs of an oil recovery are in sight. In addition to this Russian energy minister Novak also believes that the oil market could balance before the year ends. It is important to note that this rhetoric could suddenly change if second wave fears heighten and nations reintroduce a new form of lockdown.
In the cryptocurrency space
In the cryptocurrency space, BTCUSD continued to remain subdued beneath $9,600 and found temporary support around $9,000. Ethereum continues to move in a similar fashion finding support around $220 before pressing higher. At present the distance between the 200SMA and 50EMA continues to narrow potentially illustrating the bullish momentum is weakening. Gold broke higher and pushed into the daily resistance level around $1,750. A break above this level and investors will be eyeing the previous swing high at $1,765/troy ounce.
Here is a breakdown of the high impact data releases this week.
16:00 BOC Gov Macklem speaks. Markets to watch: CAD crosses
08:15 French Flash Services PMI. Markets to watch: EUR crosses
08:30 German Flash Manufacturing PMI. Markets to watch: EUR Crosses
03:00 Official Cash Rate / RBNZ Rate Statement. Markets to watch: NZD Crosses