Europe might me in the cards for the Covid-19 rescue fund – Market Analysis – June 1

Europe might me in the cards for the Covid-19 rescue fund – Market Analysis – June 1

A bout of optimism washed the markets even though current events do not support rallies

European stock markets continue to perform better than their American cousins.

Italy40 rose 1.8% and Spain35 1.5%. Germany30 is closed for a holiday.

The possibility that the European Commission approves the COVID rescue fund is the main reason and what may cause the gap between the European indices and the Americans to narrow.

North American indices continue to show indecisive behavior. Although President Trump's speech last Friday was not aggressive and did not speak of the breakdown of phase 1 of the trade agreement with China - something that investors feared - China announced this morning that it was halting imports of agricultural products from the United States in response to the measures taken by the administration regarding Hong Kong.

This, coupled with the increase in protests in all North American cities against the government, slightly increased risk aversion in the market and stopped the bullish momentum that occurred on Friday after Trump's speech.

The result is an indecisive market without momentum. Undoubtedly, the market still maintains an optimistic bias, as the lack of attention to economic figures serves as proof. Still, the uncertainty about the evolution of China's confrontation and lately, the severe escalation of protests in the country, are weighing on the market.

In the foreign exchange market, the Dollar has weakened across the board in this scenario, pushing EUR/USD to 1.1154 and with particular momentum in the case of USD/CAD, which broke down, drilling the 100-day SMA and making its way towards its next goal at 1.3459, 200-day SMA.


The Canadian Dollar and Crude Oil

The Canadian Dollar has benefited from a good figure from RBC manufacturing PMI (40.6), but above all, the excellent performance of crude oil has been reaching higher highs in recent weeks.

Crude oil fundamentals have improved substantially since the crisis, and the relations of OPEC+ countries seem to have left their controversies behind.

Although inventories remain high, global demand tends to rebound. From a purely technical perspective, OIL appears to show some overbought signals.

It has slowed its movement around the 100-day SMA, which coincides with a 50% Fibonacci retracement of the entire downward leg so that some correction could be expected from these levels, say market analysts.

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