U.S. Protests affect U.S. economic reopen plans with China-U.S. tensions adding pressure causing recovery hopes to fade, creating a clouded outlook for U.S. market activity.
Summary: The global equity market today saw major indices and key equities test multi-month highs. As risk sentiment improved across the global market, major indices and key equities traded on a positive note for the second consecutive session this week. Taking cues from the Asian market, the European market saw major risk assets open on a positive note.
The fundamental support for market bulls gained a huge boost over gains in Lufthansa shares as the firm’s board approved a government bailout package worth several billion dollars. Aside from gains in Lufthansa shares, gains in auto sector shares led by positive activity in BMW, Daimler, and Volkswagen stocks and boost to travel sector shares also helped improve risk sentiment, keeping major indices and risk assets on bullish price rally across the day.
Rare Metals: Over lack of fresh cues to support safe-haven demand, rare metals are seeing price consolidate slightly lower to recent highs. Profit booking activity ate away some of the gains, but protests in the U.S. over racial discrimination and Sino-U.S. tensions keep rare metals steady above key support price levels.
Crude Oil: Crude oil price is trading positive across both major international benchmarks and their futures. As OPEC+ members are expected to meet in a teleconference meeting later this week, traders hope for an extension for ongoing production and supply cut, and this pushed price of both W.T.I. and Brent to three-month highs with W.T.I. trading above $13 p/b while Brent trades above $38.50 p/b.
D.X.Y.: The U.S. Dollar index, which measures the strength of U.S. Greenback against six major rival global currencies, remains range-bound near monthly lows scaled in previous sessions around the mid-97 mark. As protests over the death of black prisoners and tensions between China & the U.S.A. continue to rise, dovish pressure stemming from the events adds pressure to U.S. Greenback, weakening it in the global market.
On The Lookout: The main focus is on U.S. protest proceedings and EU-UK talks. As the U.K. has kept its Brexit transitional timeline unchanged at the end of the year, and talks failed to produce positive results so far, the E.U. and U.K. are set to get together one last time to work things out between the two market regions as they discuss their trade relations.
While U.S. states have just slowly started easing up and relax lockdown measures, death of Mr. George Floyd in police custody in Minneapolis reopened pent up anger given that this is the second death of a person under Minneapolis’s police custody with the first victim being Mr. Jamar Clark who was shot down in November of 2015. As both events displayed a clear racial and economic inequality, old wounds were reopened, resulting in protests across the nation with some peaceful in nature. At the same time, a majority have taken on violent tone leading to the destruction of property and looting activities.
This has, in turn, affected the economic reopening and lockdown easing plans of various U.S. states as government officials fear the possibility of further escalation in protests. This has led to Sino-U.S. tensions taking the backseat among investors’ focus over lack of fresh developments. On the release front, the U.S. calendar remains silent for the day, aside from the release of API weekly crude oil stockpile data.
Trading Perspective: U.S. futures trading in the international market were mostly positively supported by prevalent risk sentiment in the international market. But Wall Street is expected to open flat as recovery hopes eased given pressure from escalating protests in U.S.A. and Sino-U.S. tensions, which greatly affect the government’s plans for lockdown relaxation and economic reopening plans.
EUR/USD: The pair is trading positive in the global market as a fundamental support for the EURO has improved over cues from the German government’s recovery package announcement set to aid the auto sector. However, the majority of the pair’s rally stems from USD’s weakness, and USD has consolidated its hold around weekly lows preventing pair from breach 1.1200 handle in immediate and foreseeable future.
Cues from the U.S. market will provide short term profit opportunities but pair is unlikely to see major shift if directional bias resulting in price being trapped between 1.1100 – 1.1199 price range during North American market hours today.
GBP/USD: The pair is trading positive in the global market as GBP bulls took full advantage of USD’s weakness and are drawing out every ounce of gains possible in the meantime. Reports of U.K.’s plans for compromising on Brexit talks, albeit staying firm on the transitional timeline, has helped boost optimism as both parties sit for trade-related discussion one last time. Given USD’s pressure from protests and China U.S. tensions, the pair is likely to hold steady above 1.25 handle in North American market hours today.
USD/CAD: The pair continues to test fresh multi-month lows as CAD grows strong with each passing day crude oil price makes solid gains. This has resulted in commodity-linked currency Canadian Loonie finally making a bearish breakout providing the pair with a clear downward directional bias.
As USD is also weighed down by multiple factors, the pair continues to fall sharply, having tested an intra-day low of the 1.3482 handle and consolidating around 1.3510 as traders await US API weekly stockpile data for the short term profit opportunities.
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