Market Analysis

Yesterday the dollar lost more than 1%

FOREX

Yesterday the dollar lost more than 1% to the Japanese yen, reflecting the Fed’s emergency rate cut of half a point, as well as a flight to safety with investors seeking the haven of the yen. Putting it into perspective, it’s the first time since 2008 at the peak of the financial crisis, that the American central bank has cut rates outside of a scheduled meeting. If investors weren’t scared, they will be now as the Fed’s move can be interpreted as preparation for increased challenges ahead and the negative prospects for economic growth of both the US and the rest of the world. The good news for the dollar is that other central banks are likely to follow the lead of the Fed and announce stimulus measures soon, which will bring some relief for the greenback.

Ricardo Evangelista – Senior Analyst, ActivTrades


GOLD

Gold jumped yesterday after the Federal Reserve’s decision to cut interest rates by 0.5%. The decision was taken in an attempt to anticipate any further economic impact from the coronavirus, but it did not have the reaction the bank may have hoped on stock markets as investors had already factored this during the previous trading session. Vice versa, this was significant news for bullion as not only will interest rates remain low for a long time, but the Fed also transmitted a sense of anxiety with this decision. After being so resilient in the last few months, the bank decided to cut by 0.5% in one shot. In other words, the Fed is scared of the impact the coronavirus is having and will continue to have on the economy.

Technically, there is now a first resistance level at $1,645 and a clear climb above this zone could open space for further rallies, while $1,600 and $1,575 remain the first two crucial support levels. We shouldn’t be surprised by further large movements on gold as it is now clear that volatility has come back with significant spikes seen in both stock markets and commodities in the last few days.

Carlo Alberto De Casa – Chief analyst, ActivTrades

 

EUROPEAN SHARES 
Investor sentiment remains mixed in Europe with most benchmarks trading around their neutral zone. This may be seen as a surprising trading stance from investors following yesterday’s monetary shock from Jerome Powell, with the Fed taking the decision to proceed with a half a basis point rate cut, but today’s price variations tell us another story. Such a dovish decision should have strongly boosted market sentiment towards risky assets but it seems that investors were hoping for a more globally coordinated response to the coronavirus crisis. In addition to the lack of coordination, traders were also expecting stimulus on the fiscal side which, according to French Finance Minister Le Maire, would be stronger than any monetary boost. There is a possibility that investors saw the Fed’s decision as more political than anything else: lower rates means a weaker US dollar and this should have a positive impact on US exports. This is exactly what President Trump wanted, especially ahead of the next Presidential election where he will have to show the decisions he took during his mandate were in the US interest and sustained the domestic economy. However, investors will now wait for the ECB’s move, with the central bank having already announced a monetary response was “not on the agenda”, meaning Christine Lagarde is likely to work on set of fiscal measures with rates already in negative territory in the eurozone. The best performance so far comes from Zurich with the SMI-20 trading well above 10,000pts. A clearing of resistance at 10,190pts could extend the current rally higher while 10,15pts remains the major support.

Pierre Veyret– Technical analyst, ActivTrades

 

 

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