XAUUSD D1 05 07 2020 1758

Gold prices fell alongside the bellwether S&P 500 stock index as well as crude oil prices as financial markets’ mood darkened anew. The downbeat mood drove haven demand for the US Dollar, which undermined the appeal of anti-fiat assets epitomized by the yellow metal.

Looking ahead, downbeat guidance within a monetary policy announcement from the Bank of England may keep markets on the defensive. Stock index futures are pointing in a positive direction in late APAC trade, but – as noted yesterday before similar cues unraveled – the threat of a risk-off pivot is ever-present.

That the path of least resistance favors a defensive posture probably reflects renewed focus on the emerging global recession triggered amid the Covid-19 outbreak. Economists’ baseline forecasts see worldwide GDP shrinking 1.5 percent in 2020, marking the worst downturn since the Great Depression in the early 1930s.
Gold prices are consolidating in a narrow range centered around the $1700/oz figure, with the outlines of a Symmetrical Triangle pattern starting to emerge. The setup is typically indicative of trend continuation, which carries bullish implications in this case.

A daily close above the 23.6% Fibonacci expansion at 1728.03 may act as breakout confirmation, exposing the 38.2% level at 1771.30. Alternatively, invalidation on a break below the 23.6% retracement at 1677.81 seems to target 1634.54 next.

 

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Copper 20200507 15.26

As the world staggers out of induced economic coma forced on it by the coronavirus, crude oil prices may offer on overly gloomy prognosis of its chances. Copper could rather promise the better steer.

While no one thinks that contagion will be anything other than a hammer blow to the global economy, it probably isn’t as hard a one as you might pardonably think if you merely eyed crude oil’s collapse.
While an obvious global bellwether, the oil market has its own dynamics. And the actions of producers since March, when production cuts could not be agreed, to the present day, when they have been but too late to stop a petroleum glut sloshing round a locked-down world with no use for it, are playing a huge part in the daily oil market fire sale.
Copper meanwhile is a key industrial metal and, while it has its own dynamics too, may be a purer indicator of world chances. And sure enough, in the copper world things do look much better than they did.

On the London Metal Exchange prices have risen to six-month highs this week as investors look to the partial reopening of some national economies. Benchmark three-moth copper has hit $5,260/tonne, it’s best showing since March 17. The most-traded June contract on the Shanghai Futures Exchange has made 42,880 Yuan ($6,058.15), a near-two week high.

The bad news is that, while copper may be a more optimistic market than crude oil, it’s still less optimistic than US equity. Copper prices’ gains are much less impressive than US stocks big bounce from their March lows.

 

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EURUSD H4 05 06 2020 1738

The single currency continues to move lower after the German Constitutional Court ruled on Tuesday that the ECB’s bond buying scheme (QE) was not balanced and gave the central bank three months to prove that the QE program was ‘proportionate’ otherwise the Bundesbank may pull out of the program. Subsequent commentary from the President of the Bundesbank Jens Weidmann that he would support the ECB in their efforts to meet this requirement calmed the situation but if the market sees any fractures within the EU, the Euro will come under increasing pressure.
Tuesday’s EUR/USD sell-off continues this morning after data showed German Factory orders slumping in March. According to the Federal Statistical Office (Destatis), the real (price-adjusted) order intake in March 2020 was 15.6% lower than in February 2020, seasonally and calendar-adjusted, the largest decrease since the beginning of the time series in January 1991.Compared to February, domestic orders fell 14.8%, international orders slumped 16.1% and orders from the Euro-Zone fell by 17.9%.

SPX500 D1 05 07 2020 1522

Reports this morning noted that US-China trade officials will be on a call next week, after President Trump stated that he will provide an update in the next week or two on whether China is living up to its trade deal promises. The risk here is that with President Trump also stating that China may or may not keep the trade deal, Trump may look to take retaliatory actions against China.
While the S&P 500 at is at near-term resistance (2888) a break above could put the index on course for the 61.8% fib at 2933. However, we ultimately expect upside to be capped, particularly at 2990-3000. On the downside, support is seen at 2800 with the 50% fib slightly below at 2790. With that said, a break below 2728 would be needed to confirm a bearish breakdown, as it stands the S&P 500 remains somewhat range-bound.

EUR CHF 20200506 18.30

While the price has dropped this week just under the 1.1485 low touched on April 17, 2017, it has yet to do so conclusively. Moreover, hopes are rising of an easing of lockdowns that might limit the economic damage caused by Covid-19 and lift traders’ appetite for riskier assets like the Euro.
The weekly EUR/CHF chart above shows that this cross has already dropped under its 2017 lows so is more bearish. However, there is still support for it at levels around 1.1023 last seen five years ago, some three months after the “flash crash".

 

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