The US Dollar Index continues to rise as investors are lured by the safe haven appeal of the greenback. The dollar is consolidating its status as a refuge-asset as a safety-first attitude dominates the foreign exchange markets after the Fed chairman made it clear that the American central bank expects the economic recovery from the coronavirus fallout to be slow. These were sobering words from Jerome Powell, who at the same time added to the American currency’s appeal by ruling out negative interest rates, at least for now.
Ricardo Evangelista – Senior Analyst, ActivTrades
Gold remains solid trading well above $1,700 with the spot price consolidating at $1,715. Jerome Powell’s comments had a mixed effect. On one hand, he mentioned that the economy will probably remain weak (in other words, a V-shaped recovery should be considered almost as utopic), while on the other hand, he said that he sees little chance of negative interest rates. The first point is probably positive for bullion demand coming from the investment sector, while the second one could have the opposite effect. Technically the situation remains supportive for gold amid high uncertainty on markets and the strong stimulus coming from central banks.
Carlo Alberto De Casa – Chief analyst, ActivTrades
European shares drifted lower on Thursday alongside Asian equities and US Futures on the S&P 500 as market sentiment slowly fades. Investors, who were already sceptical about further gains on stocks, have seen their risk appetite slashed by yesterday’s comments from Jerome Powell.
The Fed chairman added to the current uncertainty by warning investors about the lasting damage to the economy caused by the coronavirus pandemic, and the fallout could worsen if no additional stimulus support is provided. The market optimism between the end of March and early May has now vanished and led markets to fresh lows for the first time since the beginning of the April rally. This is seen as a threatening situation to markets as the short to mid-term bullish trend is now over and traders wonder if prices will enter into a horizontal consolidation phase or start a new corrective move that could lead to much lower lows.
Investors will need fresh bullish leverages, like reassuring macro data or encouraging numbers on the virus front to send prices higher and restart the rally. Having said that, we expect volatility to rise towards the end of the week as investors cautiously monitor the latest significant data with today’s US jobless claims and tomorrow’s much anticipated retail sales and industrial production from China.