Equities pushed all the way to the top by optimism – Market Analysis – May 20

Equities pushed all the way to the top by optimism – Market Analysis – May 20

Currencies fade in favor of commodities

Positive market sentiment continues to drive equity markets higher, and the Dollar is weakened by outflows of the US currency that had been previously bought as safe-haven.

In terms of economic figures, nothing new has been the cause of these movements. Still, investors bet that the reopening of the economy will take place quickly and that a solution to the disease will be found in the form of a vaccine or treatment.

The oil market is also helping. Everything indicates that demand is gradually normalizing; the reopening of China has a lot to do with it. As proof of this, we have the inventory figures published today that show a phenomenal drop in crude oil inventories of -4983M vs. 1511M expected. BrentOil has touched the resistance level at $36.54 again, an area it has to overcome that could possibly open new paths upwards to the next level of $39.54.

The Dollar tends to weaken once the risk appetite increases in the market, a logical consequence of the extreme monetary policy of the Fed that has injected more than 6 trillion Dollars into the market, pushing the yield of Treasuries at record lows.

The effects are being witnessed in GOLD, which continues its upward trend and in the different currency pairs of the Dollar, including the Yen, which have experienced declines in the US currency.

Canadian Dollar

USD/CAD is in a significant support zone. The Canadian currency is benefiting from crude outperforming even though the Canadian inflation data published today showed a drop in the core CPI of -0.4% in April. The pair is very close to a support area located at 1.3857 whose drilling, in case the Dollar's weakness continues, would open the way to lower levels that can be placed at 1.3650 and 13430, levels of 100 and 200 daily SMA respectively.

British Pound

Bank of England Governor Bailey, in a statement made this afternoon, has been in favor of negative interest rates, stating that it is a possibility that is under review. However, experiences in other countries have caused some inconvenience. The Pound has weakened slightly with the statement. Still, as negative economic figures are released, and the next BOE meeting approaches, the market will most likely advance this possibility and push the Pound lower.

If the Euro benefits from a better expectation over the possible European Commission deal on the €500 trillion rescue fund, EUR/GBP will resume its recent bullish move.

From a technical perspective, the pair failed to go below the 0.8680 zone and has created a reversal pattern that finds its first resistance at 0.382 Fibonacci retracement of the last downward leg at 0.8987. The above next level could be at 0.9082 50% Fibonacci retracement.


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