08-Jun-2020

1) GBP/USD: Correction Time? Brexit Deadlock, Slow Reopening and Protests Point Down
2) WTI Cracks Psychological $40 Barrier after OPEC+ Decision to Extend Production Cut
3) Before The Fed Decision, Markets May Become More Cautious
4) Gold: Bears Are Trying To Take The Pair At South Side, Will They Get Success?

1) GBP/USD: Correction Time? Brexit Deadlock, Slow Reopening and Protests Point Down

“The UK continues to backtrack on commitments taken” – the harsh words of Michel Barnier, Chief EU Negotiator, reflects the deadlock in talks about future relations between Brussels and London. While the lack of progress has been unsurprising, the tone and the potential to abandon negotiations is becoming more real.

Barnier’s presser on Friday took only a minor toll on the pound, as markets were gearing up for the US Non-Farm Payrolls figures. Nevertheless, the specter of the UK falling to World Trade Organization terms may still weigh on the pound.

Another factor that may pressure the pound is Britain’s slow reopening. Coronavirus statistics have been falling at a slower pace than continental countries. That, and potentially Prime Minister Boris Johnson’s near-death experience with COVID-19, are behind the cautious approach.

While moving more slowly may reap benefits later down the line, the economy is suffering in the immediate term. Moreover, the UK’s decision to demand a 14-day quarantine for entering passengers has angered airlines and is set to hurt the tourism sector.

The third bearish factor is massive protests that were seen in the UK over the weekend. Inspired by demonstrations in America, Brits came out to the streets in a call to end racial discrimination. Grievances span the history of slavery and run through coronavirus – which has taken a disproportionate toll on Black, Asian, and minority ethnic (BAME) communities.

The PM has already been losing support due to his handling of the disease and discontent over racial discrimination piles up. Moreover, protesters have not observed social distancing measures, risking new clusters, which may further delay the return to normal.

Large demonstrations were also seen over the weekend in the US, and may indirectly have a positive effect on markets. Lawmakers have reportedly accelerated talks on another fiscal relief package. That may boost stocks and weigh on the dollar.

On the other hand, elected officials may feel disincentivized to act after the US surprisingly reported an increase of over 2.5 million jobs in May. The Non-Farm Payrolls provided a positive shock to investors bracing for the bad news. Government support played a substantial role in keeping people on the job.

This week’s most significant event is the Federal Reserve’s decision on Wednesday. The world’s most powerful central bank will likely reiterate its ongoing support to the economy but may loosen its efforts amid the bounce in employment.

2) WTI Cracks Psychological $40 Barrier after OPEC+ Decision to Extend Production Cut

WTI oil rose on Monday and cracked psychological $40 barrier, hitting the highest in three months after major oil producers agreed to extend a deal on production cuts to the end of July.

OPEC+ group decided on Saturday to extend reduction of nearly 10% of global supply in attempts to stabilize oil market which collapsed on coronavirus lockdown as the measure gave good results in past two months.

China’s crude imports hit an all-time high in May that also underpins price recovery, along with gradual re-start of global economies after pandemic. The contract made an uninterrupted advance in past six weeks and registered the biggest monthly rise in May in nearly nine years. Close above $40 level would generate bullish signal for further advance as bulls look to fill the gap from early March, on close above $41 level that would boost positive signal. Key Fibo barrier at $43.05 (61.8% of $65.63/$6.52) marks next target as stronger bullish acceleration could stretch towards $46.08 (200DMA).

Caution on overbought daily stochastic and RSI (stochastic also formed bearish divergence) that may slow rally. Strong supports lay at $36.27 (the highest after 9 March big gap lower) and $36.08 (broken 50% retracement / rising 10DMA) and expected to contain potential dips and keep bulls intact.

3) Before The Fed Decision, Markets May Become More Cautious

Growth in U.S. employment by 2.5 million instead of the expected decline by 7.5 million triggered one of the most energetic growth impulses in recent years. Nasdaq updated historical highs; Dow Jones climbed by more than 3%, S&P500 strengthened by 2.6%. On Monday morning, the Nasdaq shows new highs, and a little over 1% separates it from the round 10,000 in anticipation of the Fed meeting later this week.

Currency market dynamic often serves as an early indicator of sentiment. At the beginning of the week, it shows the growth of demand towards taking profits from the previous rally.

EURUSD dropped to 1.1280, losing 100 points from Friday’s highs after the 4.7% rally in the previous two weeks. The RSI indicator is retreating from the overbought area, which often signals a correction rollback. Since February 2019, the pair has reversed several times from levels near 1.1400, that is another sign in favour of correcting pullback. Besides, it is essential to remember that the ECB has impressively increased its QE, which makes the continued growth of the euro somewhat inappropriate for the fundamental reasons.

The Australian dollar is testing 0.7000, but on Friday and earlier today, it faced an increase in sales from these marks. Overcoming this level will be an additional signal of breaking the downtrend in the pair. However, still, it is worth waiting for this signal first.

The Canadian dollar was falling below 1.34 on Friday, completely closing the gap of the beginning of March. Technically, the USDCAD is in the oversold area. Now, investors and traders can pay more attention to whether the Canadian currency has exhausted its growth momentum. Its dynamics is also crucial as a display of sentiment of American investors. At the same time, AUDUSD estimates the view of investors from Asia, and EURUSD – from Europe.

Quite possible that up to the Fed’s rate decision, the markets may be dominated by a corrective mood, as investors will close some positions after the previous rally and wait for further policy signals. At the end of last week, chances for the rate increase in June began to grow. So far, the probability of this is modest 9.3%. However, it is an essential signal that markets do not expect negative rates.

4) Gold: Bears Are Trying To Take The Pair At South Side, Will They Get Success?

Gold is now a very volatile instrument which can rise the fund or blow out your fund. If you follow proper money management rule then you may establish your account with good amount. Now coming on the analysis part we can see that earlier gold was making successively higher highs and higher lows but after arriving at $1765 level we got a correction where we were expecting that it’s an second opportunity to buy again for those who have missed earlier and it made a dip till $1693 level and again rebounded to 1745 level where bulls got exhausted and at the same time bears got the charge. However it was not an easy task for bears to pull the gold at $1670 level on Friday after NFP released.

Also, we have seen a bounce from $1670 level to $1696 i.e. today at the time or writing. Overall gold is now trading below the psychological level of $1700 which is a point of concern for bulls. The way bears are reacting it seems like they will take it to downside this time till $1570 however we will get further confirmation below $1670 level. Below $1670 fresh selling will be there and bears may become more aggressive to achieve their targets.

Gold has entered in very short term consolidation phase now where we can see that a horizontal trend channel has been formed which suggest us to buy above $1745 only and sell below $1670 level however aggressive traders are advised to short at current levels to get the benefit of the momentum.

On 4 hourly chart gold is trading below all the major and minor EMA lines and MACD along with RSI are also supporting the bears from short term point of view. A death crossover on 4 hourly chart also posted which is providing strength to the bears and signaling further downfall is expected.

 Odds are in favor of bears and daily to weekly bias remains bearish on gold as long as $1710 level remains intact on a closing basis.

Also, bears are playing at the front foot and it seems like bears are going to continue with this game and will not provide any chance to bulls. The $1670 level can be considered as a key support level followed by $1600 where $1710 is a key resistance level followed by $11735 level. Above $1735 level we may see a panic reaction from bull’s side.