EC support package updates and gains in travel/tourism, airline, and bank sector shares improve risk sentiment. Wall Street indices to open positive, but gains to be capped on account of Sino-U.S. tensions.
Summary: The European market today saw major indices, and key equities make a solid positive price run supported by strength from the EU’s recovery plan announcement and gains in bank sector shares.
The European Commission has finally settled on better than expected recovery package worth nearly 750 Billion Euros for the post-COVID-19 economic recovery support plans and activities. This along with news of EC’s plans to borrow US$ 8.49 billion from financial markets to fund COVID-19 preventive measures such as expenditure on vaccination, drugs, and healthcare for a period of the next four years, to reduce impact from the dependency of foreign supply helped boost economic growth and demand outlook.
In the Forex market, broad-based risk sentiment helped major global currencies reverse loss from the previous sessions and trade with a positive bias against US Greenback in the international market today.
Rare Metals: Risk sentiment continues to improve steadily over the last few trading sessions, and this has resulted in rare metals such as gold and silver slowly losing their gains. While cheaper USD has prevented traders from taking a massive chunk of gains in the name of profit booking, boost in risk sentiment is slowly eating away at fundamental support for safe-haven assets resulting in the price of gold and silver slowly approaching key support levels. While gold traders with clear dovish bias today, silver has maintained relatively neutral activity in the spot market.
Crude Oil: Crude oil price in the global market sees consolidative action in major international benchmarks such as WTI and Brent. Futures of both the mentioned benchmarks are seeing a slight decline in price today, albeit holding firm above key levels as escalating tensions between China and USA over Hong Kong protests is affecting demand to supply ratio outlook yet again. For now, traders await US Weekly crude oil inventory data for short term trading cues.
DXY: The US Dollar index, which measures the strength of US Greenback against six major rival currencies, is on a steady decline for eight consecutive sessions today. The index, which mostly averaged around 100 to mid-99 range for the majority of the first half of the month, has maintained a constant daily close at the 99 handle since May 18th, and it has finally breached below the 98 handle.
While the price of the index did test lows of 98.765 in the early half of May, it was soon reversed in the intra-day activity. But the index has seen a constant decline index reciprocating improved risk sentiment in the market since the trading session began for the week. The index closed yesterday at 98.906 and has tested fresh monthly lows at 98.718 in intra-day activity today – a clear sign of rapidly declining safe-haven demand despite lingering caution over the possibility of a second wave of COVID-19 outbreak.
On The Lookout: While risk sentiment is improving in the global market with each passing day supported by measures taken by major central banks and governments alongside efforts to relax lockdown measures, caution still remains. WHO’s warnings over a possible second wave of covid-19 breakout and escalating Sino-U.S. tensions over Hong Kong protests are causing doubts to linger in the minds of investors. But the impact of the same is not as high as seen during the earlier phase of this month.
As more companies participate in vaccine trials and show some level of positive progress, and while early-stage covid-19 victims and governments are boosting expenditure on production and supply of safety measures equipment, concerns of COVID-19 outbreak causing a second major global lockdown and economic outage remains relatively low.
Business surveys and financial data have made it clear that quarterly readings for q2 of 2020 and half-yearly readings from key brands are likely to take a major hit over the lockdown impact. This has caused serious concerns over the possibility of a credit rating downgrade, which could, in the short term, affect the momentum of major risk assets across the globe.
Tensions between the US and China continue to grow. While it is limited on the trade war front, senate’s approval of US bill sanctioning Chinese officials over human rights violation in the province of Xinjiang and China’s new security law pertaining to Hong Kong protests greatly affect risk sentiment in Asian markets and related stocks and assets in international market regions.
The House of Representatives in the US is set to vote on the Senate-approved bill of US sanctions on Chinese officials later today, and the outcome would greatly affect the end of week trading activity. On the release front, the US economic calendar sees the release of API weekly crude oil stockpile report and Beige book readings.
Trading Perspective: Wall Street indices are set to open on positive note aided by cues from the international market and risk sentiment in the US region supported by economic recovery hopes. But gains are likely to be limited on account of resistance stemming from Sino-U.S. tensions.
As lockdown has been relaxed in the US and European region, travel/cruise and Airline sector shares are finally trading on positive note reversing a loss from lockdown duration. US Futures trading in the international market was positive, which supports pre-trade activity in the North American market region, suggesting the positive opening of key assets and indices in the US market later in the day.
EUR/USD: The pair has finally conquered 1.10 handle after nearly three months of steady decline led by Brexit and COVID-19 woes. Rapidly easing USD’s strength supported by improved risk sentiment in the global market also adds strength to EURO bulls. Still, the EURO needs to find strong fundamental support in the immediately foreseeable future to ensure that it can build on its current momentum and establish a breakout rally. Traders now await US data for short term profit opportunities.
GBP/USD: The pair is trading in red today despite prevalent risk sentiment in the market as a setback in recent Brexit proceedings, which so far showed signs of positive breakthrough gave a major blow to GBP fundamentals. But weaker USD in the global market helped limit decline, keeping price steady above the 1.2220 handle. Traders now await US data for short term profit opportunities.
USD/CAD: The pair is mostly trading flat after having tested an intra-day low of 1.3725 as crude oil price action turned dovish over a decline in demand outlook impacted by escalating China-U.S. tensions. But USD’s weakness in the market helped the price of pair consolidate below 1.3830 handle where it remains range-bound as traders await US weekly crude oil inventory stockpile data for short term profit opportunities.
Please feel free to share your thoughts with us in the comments below.