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Daily market commentary: The trend for oil has changed again



FOREX

The forex market is hesitating between maintaining the risk-on stance that prevailed from late May and into the start of June, or fully embracing the more cautious approach that crept in at the end of last week. The euro lost more than 1% to the dollar during Thursday and Friday, as a resurgence of new infections in previously cleared regions caused investors to start worrying about the possibility of a second wave of the pandemic. The euro is specially exposed to a potential loss of investors’ faith in a quick economic recovery, with the currency associated with risk. The next few sessions are likely to clarify which state of mind prevails in the markets; optimism is likely to support the single currency, while renewed pessimism could take it back to the lows of mid-March.

EURUSD chart

Ricardo Evangelista – Senior Analyst, ActivTrades

OIL 

After weeks of gains, the trend for oil has changed again. From a fundamental point of view, we haven’t seen huge changes, as there is no big news. The reality is that in this phase, markets are moving on emotions and gut-feel rather than rationality. This is generating disproportionate and impulsive movements, in both directions, illustrated by oil’s rally from $0 to $40 and subsequent fall of around 15% seen in the last few days. The rally was supported by generous expectations for a V-recovery of economies while the recent correction (which was also seen on stocks) is a normalization after the panic buying. Technically, WTI futures are back to the levels seen in March when OPEC failed to agree on a deal. It will be interesting to see if this zone can support price in the next few days to generate a rebound or at least avoid a further decline as this would denote that we have found a new equilibrium for the price of WTI between $34-$35.

Carlo Alberto De Casa – Chief analyst, ActivTrades

daily market analysis

EUROPEAN SHARES 

European stocks drifted lower at the opening on Monday, extending losses registered earlier this morning by Asian benchmarks, as the appetite for risk assets decreases. This risk-off mood, initially triggered last Thursday by fears of a second virus wave, has been confirmed over the weekend after a rise in the number of new COVID-19 cases were spotted in many different areas such as Japan, Beijing and the US (20 states). In addition, macro data added to this global disappointment this morning after Chinese retail sales continued to drop and the industrial production came in below expectation. Even if higher volatility may come from multiple monetary policy meetings this week (BoE, BoJ and Swiss National Bank), the risk-off tone will prevail as more and more investors view the economic recovery to be longer than previously expected. Meanwhile bonds, precious metals and other safer havens are likely to be used as diversification tools this week as traders try to hedge their portfolio against these rising downside risks on stocks.

Technically speaking, the Stoxx-50 Index is now trading inside the lower part of its bullish canal, slightly above the strong 2,850-3,050pts support zone, which is the last remaining support before the bullish trend would become invalidated.

Stoxx-50 Index chart

Pierre Veyret– Technical analyst, ActivTrades

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Daily market commentary: The trend for oil has changed again

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