ActivTrades’ Market Analysts prepared their daily commentary on traditional markets for March 3, 2020. This is not a trading advice. See details below:
FOREX
The US Dollar Index gains of less than 0.1% during early Tuesday are modest but still remarkable when you consider the greenback’s losing streak of more than 2% over the previous seven sessions. The dollar’s slight recovery coincides with an improvement in market sentiment, which turned more positive following the pledge by central banks around the globe to provide monetary stimulus to mitigate the fallout from the coronavirus crisis. Optimism is moderate though and we mustn’t misinterpret this rebound as a recovery. The coronavirus is still casting its shadow over the global economy’s growth prospects and after more than 10 years of monetary stimulus, central banks’ capacity to intervene is, generally speaking, limited.
Ricardo Evangelista – Senior Analyst, ActivTrades
GOLD
The gold price is steady and traded just below $1,600 after a few turbulent trading sessions.
On Friday many traders reduced their long position on bullion, which sparked a sell off that arrived in conjunction with a strong correction of the indices of the major markets. The discussions about the reasons behind this fall are long and complicated. Certainly some traders were closing their positions to grab money to cover other positions near to margin calls, while other investors have viewed the recent bullish rally as having gone too far too soon. Furthermore, there are also some concerns about Asia’s jewellery demand in the next few months.
Technically we can find a first support level placed at $1,585, with significant space for further recoveries if stocks turn again in red in the next few days, but also if hopes for a new stimulus from central banks become reality. In this second case, we could have a surprising positive correlation between gold and stocks, which could both react positively to this scenario.
Update: Gold is celebrating the surprising 0.50% interest rate cut that has just been announced by the Federal Reserve. The Fed is obviously trying to act early to battle any potential slowdown of the economy.
This decision could be seen as extremely positive for gold. First of all, traders are now even more confident that interest rates will remain low or very low for a long time. Secondly, investors might think that the Fed is fearing a negative turn.
After sticking to previous rates in the last few months, the Fed has gone ahead with a sudden 0.50% cut all in one go. This shows that the Fed is seriously worried about the impact that the coronavirus might have on the economy.
Last but not least, this rate cut might not necessarily help stocks in the medium term and any further correction on the equity market could provide a further boost to bullion.
Despite all this, we should still keep in mind that there are some risk elements for gold too, including a potential weakening of demand for gold for jewellery making and from the industrial sector.
Carlo Alberto De Casa – Chief analyst, ActivTrades
OIL
Crude oil seems to have managed to curb the sell off on the support level at $42.50. This is the same barrier that also contained the barrel’s losses on Christmas Eve in 2018, when stock exchanges and stock markets also suffered widespread losses. If this support manages to contain the price, this would be the first sign that the downtrend has reversed and be an early indicator of a recovery in oil consumption. From a technical point of view, a first target for long positions is the 50-day moving average.
Andrés Gago-Núñez– Analyst, ActivTrades
EUROPEAN SHARES
Share markets around the world edged significantly higher on Tuesday, extending yesterday’s gains, ahead of today’s highly anticipated meeting of the finance chiefs of the G-7. This teleconference is likely to be today’s main event as investors desperately await for a strong and coordinated policy response to the growing impact of coronavirus. There is clear expectation of a new fiscal and monetary policy but no one knows exactly how big the new set of measures will be.
President Trump keeps on pressuring the Federal Reserve to proceed with significant easing and rate cuts while the President of the ECB Christine Lagarde also want a strong reaction from central banks. The current rally on risky assets is very short-term and is likely to be driven by high expectations from investors ahead of this financial meeting.
However, finance chiefs and central banks can still surprise traders by topping estimates in the size of their new set of fiscal and monetary measures, which could lift share markets further around the globe.
The best performance is coming from Frankfurt where the DAX-30 Index bounced back above 12,000pts. Prices are challenging their first major resistance below 12,170pts-12,220pts while the 55-day moving average is already registering a trend reversal. Next upward targets are located at 12,500pts, 12,755pts and 12,975pts by extension.
Pierre Veyret– Technical analyst, ActivTrades