The sharp decline in global crude oil futures has had a serious impact on risk sentiment dragging major risk assets and indices on bearish nosedive today.
Summary: The US market yesterday saw crude oil futures turn negative resulting in the suspension of trading activity enforced by exchange operators. The sharp plunge was the result of increased selling activity given the need for traders to pay and take hold of crude oil from storage points at end of contract season. As demand remains little to none amid COVID-19 lockdown and storage continues to rise on all ends regardless of a cutback in production activity, traders opted to sell all their holdings resulting in the price meltdown.
Following this move, risk sentiment turned sour and Asian market hours saw major indices and key equities across key Asian exchanges take a nosedive. Further, the price decline of international crude oil benchmarks Brent and WTI to multi-decade lows in today’s session added fuel to investor caution which has already peaked over the pandemic crisis and worse quarterly financial reports. European market followed the Asian market’s example with all major indices and key risk assets across major exchanges maintaining dovish price action today.
Precious Metals: Rare metals are trading well within familiar price levels with intra-day activity showing some signs of dovish bias. However, overall activity from Asian and European market hours suggests that price is mostly flat across metals such as Gold and Silver amid prevalent caution and firm USD.
Crude Oil: Both Brent and WTI futures are trading with clear dovish bias today. As storage space seems to be approaching full capacity within a matter of weeks and demand to supply ratio remaining down by 30% despite 10% cutback agreed by oil producers cartel fundamental support remains low in the market. Brent futures are trading below $20 per barrel while WTI is trading at multi-decade lows around $8 per barrel.
DXY: US Dollar Index retains a clear positive bias and firm hold above the 100 handle as global financial market proceedings paint a clear picture of risk aversion and cautious market activity. US Dollar holds steady against six major rival currencies as safe-haven demand keeps USD bulls fundamentally supported regardless of pressure from the US government and central bank support packages.
On The Lookout: The global financial market is experiencing its own pandemic across major economies be it equities, futures or bond market. While activity in equities and futures markets are visible clearly, the situation surrounding global sovereign bonds remain a little clouded amid support package updates from major central banks and their support term and long term impact on bond market activity.
While Fed’s fund infusion into bond markets helped stabilize the crisis in the short term, lack of support measures from the other side of the Atlantic Ocean has created a tense atmosphere in the European bond market. As the bond market lost its preference as a stable safe-haven playground, the focus for such activity has turned to rare metals and safe-haven currencies.
The dovish environment surrounding the crude oil crisis doesn’t seem like it will improve anytime in the near future albeit slump being influenced by short term factors. Traders need to await economic activity resumption post lockdown term for a better idea on demand to supply ratio for real-time market picture.
On the release front, the US calendar will see API weekly stockpile data and existing home sales data while the Canadian calendar sees retail sales data.
Trading Perspective: Wall Street set to see major indices and key equities open with a gap down move as plunge in crude oil price and crude oil storage area crisis greatly impacts investor sentiment. Cues from the international market also suggest the prevalence of dovish bias in the North American market hours. On earnings calendar front, Wall Street sees quarterly data from Texas Instruments, Northern Trust, Omnicom, Coco-Cola, Netflix, Emerson, Dover, Lockheed Martin, Dover, HCA, Prologis, Snap-On and Travelers.
EUR/USD: The pair continues its neutral activity as neither of the two currencies lacks the strength to make a breakout. Despite broad-based caution and safe-haven demand underpinning USD, Greenback is unlikely to drag price below 1.08 handle as Fed and US Government support measures cap USD’s further gains while financial crisis and comments from Italian PM over ongoing financial summit weigh down EURO preventing it from scaling 1.09 handle in immediate future.
GBP/USD: The pair experienced a sharp plunge driven by broad-based USD’s strength in the global market over spike in safe-haven demand. While price plunged below 1.22 handle earlier in the day Pound bulls managed to reclaim hold above the 1.2300 mark as USD held firm rather than build a rally on its safe-haven demand backed strength in broad market today.
USD/CAD: The pair is seeing positive price action today with price holding steady above 1.42 handle on the sharp plunge in global crude oil price activity and the resultant change in fundamental strength. USD bulls are backed by safe-haven demand while CAD suffers from a global crude oil supply glut scenario. The pair is unlikely to see any change in directional bias regardless of macro data outcome as CAD bulls remain under overwhelming dovish pressure.
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