As Coronavirus wanes markets brace for geopolitical turmoil
China has decided to seize complete power over Hong Kong by implementing the so-called security law that would allow, among other things, the direct action of the mainland police in the city. This action takes place at the hottest moment in relations with the United States, which has been openly supporting the protests of the Hong Kong population against full political integration with China in recent months.
In the market, this measure is interpreted as a direct dare from China to the Trump government. It is, therefore, one more element of uncertainty that can pose an obstacle to the recovery of the world economy if the tension escalates to the point of weakening trade relations.
Stock markets reacted to the downside with the news but have gradually regained territory during the session, given the lack of immediate reaction by the Trump administration to the news. This non-response can be valued by the market as an intention from Trump not to raise the level of hostility, but investors will be very attentive in the coming hours/days to events.
Meanwhile, and awaiting news, the stock market remains flat and unchanged.
On the other hand, the dollar strengthens as a safe haven against all major currencies except JPY.
EUR/USD has continued to the downside due to a stronger Dollar and the intention of the ECB to increase its asset purchase policy, as we have learned after the publication of the minutes of its last meeting. Central bank officials say that when they learn about the forecasts from the Eurosystem Staff Macroeconomic Projections, they will assess the need to increase their stimulus package. As the economic figures for the Eurozone continue to be negative, the market is beginning to anticipate this measure, which would put downward pressure on the Euro.
The main support level is at 1.0770 in a daily close.
Another currency sold today against the Dollar has been the pound. UK Retail Sales for April fell 18.4% and raised market expectations for the BOE to cut interest rates at its next meeting with the possibility of negative interest rates being implemented.GBP/USD has fallen to 1.2160, and its next support level is at 1.2080, its previous low. The general objective of the reversal pattern of the daily chart is 1.1850.
The Australian Dollar has also weakened in today's session. The rating agency Fitch has downgraded Australia's outlook to negative. Although it maintains its AAA rating but prospects are uncertain due to the effects of the pandemic crisis. AUD/USD is still continuing its upward trend, although with signs of exhaustion that are reflected in bearish divergences in the daily RSI. The pair needs to break the support at 0.6373 to end the current trend and head towards new lower targets.
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