Early Friday trading is under the spell of risk avoidance, offering support to the safe haven dollar. Investors have shown remarkable optimism lately, but the cold reality of more than 60,000 new cases of COVID-19 in the US yesterday has, for now, beaten the positivity out of the markets. These fears of a resurgence of the virus have been compounded by American employment data published yesterday, showing the number of claimants above 18 million and driving fears of a slow economic recovery. Amidst the surge of apprehension, the dollar once again emerges as the go-to currency when risk is off the table.
Ricardo Evangelista – Senior Analyst, ActivTrades
There is a lot of expectation for a quick global economic recovery but is this supported by real fundamental reasons or more linked to expectations for continued interventions by the Fed and the ECB? This is probably the real question surrounding stock markets as well as the oil market. The oil price has recovered the threshold of $40 after falling negative – for a couple of hours only – on the 20th of April. This only involved the May expiry of WTI, due to a temporary and extraordinary situation in which all tanks and stocking structures were completely full in Cushing, Oklahoma, where many oil pipelines converge.
What can we now expect from the price? For sure we have a weaker market compared to the pre-pandemic situation, even if it seems that OPEC+’s intervention and central banks’ quick reactions has managed to lift the price up again.
The biggest risk is linked to the possibility of a second wave of the virus and particularly to further closures of economy, which could generate temporary collapses of economies reducing movement of people and fuel demand from the car and airplane sectors. Moreover, in the face of a global recession oil demand will decline, with consequent effects on the price of the barrel. This is definitely another significant risk, as the oversupply scenario seen in recent months could re-emerge if economies slow down.
Another element to be considered is the agreement between OPEC+ countries, which is a crucial support to the price. Moreover, it will also be very interesting to see the reaction of US producers and the percentage of structures which can survive a sustained low-price environment (and of course, the intervention of the US Government to sustain them). In a few words, investors are betting on a quick recovery, but risks remain and could be just around the corner.
Carlo Alberto De Casa – Chief analyst, ActivTrades
Stocks slid lower on Friday in Europe, extending yesterday’s losses and following the bearish trend overnight in Asia, as risk appetite fades across the globe. Despite a positive start to the week, record increases in the number of infections and deaths in several countries (California, Florida, Mexico, BRIC countries etc…) has brought some uncertainty back to the markets and impacted market sentiment. Even if most investors, reassured by unprecedented monetary and fiscal stimulus, still believe in the soundness of economies, they are also digesting the fact the virus isn’t disappearing. This situation leads them to temper their investments and brace for potential new local lockdown measures this year, which would make the current recovery slower than initially estimated. Bullish trends remain valid so far on most benchmarks but this situation increases the likelihood of slightly less directional markets in the coming weeks as traders may wait for significant progress on the virus front to increase their exposure to riskier assets.
The Stoxx-50 Index is trading towards its first available support level, over 3,250pts, in a corrective move inside its bullish channel. The market continues to register fresh highs while the lows are above its short-term bullish trendline, which is keeping the 21-day moving average bullish and acting as a dynamic support for the price. The upward target remains just below 3,400pts but a break-out below the 3,250pts zone could see the price fall back to 3,175pts on a short-term basis.
Pierre Veyret– Technical analyst, ActivTrades
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