Fed meeting begins today, New York set to reopen economy post-100-day lockdown, crude oil price decline, and geopolitical tensions keep caution underpinned.
Summary: Global equities have taken a mixed tone on Tuesday as cues from the local market dominate market momentum and influence directional bias. Taking cues from record closing in Wall Street, the Asian market saw major indices and key risk assets close on a positive note for the 9th consecutive session. However, the European market opened lower for the day, bringing to halt an ongoing positive price rally.
Developments in the European market region have caused major indices to suffer further decline by mid-European sessions. Profit warnings in its revenue forecast from British American Tobacco followed by a decline in its share price and dovish activity in the auto sector, bank sector, and insurance company shares are weighed down market mood causing major risk assets to post some level of loss in today’s session.
Precious Metals: Rare metals are trading mixed in the global market. While silver continues to trade in red, gold is trading positive in the global market with the price of futures moving above $1700 handle as risk aversion in European markets helped the #1 safe-haven metal gain some level of demand.
Crude Oil: The price of crude oil futures is still in red, but both WTI & Brent futures are have recovered more than 1.5% of their loss from a 3% decline in the previous session. While all OPEC+ members have agreed to a supply cut measure till the end of July, Saudi energy minister announced late yesterday that Kuwait/UAE & Saudi would not be pursuing their additional supply cuts in July, causing ongoing positive price rally in global crude oil market to come to a halt.
DXY: The US Dollar index continues to hold firm inside the familiar price range of 96.7-97.3 against a basket of six major currencies. But the latest developments in the European market have caused dynamics in physical and e-forex markets to take a slight shift causing USD to strengthen ahead of the upcoming Fed interest rate decision meeting. But USD hasn’t made any sharp moves given traders caution while they wait for cues from Fed’s interest rate decision and forward guidance.
On The Lookout: On Geopolitical events front, there are no major events that can cause a major shift to risk asset price dynamics in the US or global market. While the key middle eastern oil producers have decided to halt additional supply cut back measures at the end of this month, the overall supply cut agreement still holds firm which, along with a decline in US weekly inventory stockpile keeps demand to supply ratio in favour of Crude oil bulls for now. But resurgent tensions between China and the USA and price spike for crude oil from Saudi Arabia have affected demand outlook to some extent. It remains to be seen how the developments will move forward from now on.
In US markets, New York is set to reopen its economy after a 100-day lockdown, which makes today’s US wholesale inventories a major data to look out for despite its usual lack of impact. There is also release of JOLTs Job Openings update and API weekly crude oil stockpile data while FOMC members begin their two-day meeting to decide interest rate related decisions later today.
Trading Perspective: While overall risk sentiment in the US remains positive supported by hopes for economic recovery and there is much anticipation towards lockdown relaxations in New York today, US futures trading in the international market were down on account of multiple factors ranging from crude oil cues to broad market investor sentiment in Europe. Wall Street could open slightly on the lower side over cues from the European market and worries stemming from developments surrounding Crude Oil outlook, but local factors dominate market activity today, and any positive cues from the US will help reinforce risk appetite and limit decline as the trading session progresses into North American market hours.
EUR/USD: The pair is trading with slight dovish bias but still holds firm above mid-1.12 region over a decline in risk sentiment in European market hours. Firm USD and disappointing German trade balance data weighed down EURO bulls, but better than expected Euro area GDP helped limit decline keeping the price at familiar levels. Traders now await cues from US Fed meeting and macro data for short term profit opportunity and directional bias.
GBP/USD: The pair is trading with clear dovish bias as the British Pound lost a significant chunk of its gains made from a recent decline in USD’s strength. As risk aversion bloomed in European market hours and Greenback firmed ahead of the Fed meeting, the price is now down from 1.27 handle and Rangebound in the lower half of 1.26 price range. Traders now await cues from US Fed meeting and macro data for short term profit opportunity and directional bias.
USD/CAD: The pair is trading on a positive note today, but gains were capped at the mid-1.34 handle as CAD still holds firm. While USD has recovered some level of strength, recovery of crude oil price decline from the previous sessions keeps CAD bulls fundamentally well supported, resulting in pairs remaining well within the lower half of the familiar price level. Traders now await US weekly API stockpile data and Fed cues for short term profit opportunity and directional bias.
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