The risk-on rally is still alive in both European and North American stocks. With a shaky start of the session, the stock markets managed another day of increases, although less intense than in the previous two days.
Despite this, most market participants agree in valuing the situation as uncertain without being able to have solid arguments to support recovery.
On the other hand, the leading investment banks research argue that we should not rule out new sell-offs in the stock markets, which is entirely logical if we consider the enormous negative impact of the locked-out world economy over such a long time and the fall in consumption due to the confinement of population.
From a technical perspective, the price action of stocks is considered corrective within a bearish trend.
USA500 has already corrected almost 50% Fibonacci of the entire fall, and in the H4 chart, we see the 200 MA (moving average) has not been exceeded since the start of the sell-off at the end of February. This H4 200 MA level is a resistance level and therefore, an essential level around the 2720-2740 zone.
The Australian Dollar
The US Dollar has depreciated against all currencies in an environment of better risk sentiment, including commodity-sensitive currencies such as the Australian Dollar.
In this specific case, the Australian Dollar has appreciated despite the cut in interest rates by the RBA (Reserve Bank Australia) and the start of a QE asset purchase program that has lowered the yield of 10 year bonds to 0.90%. There is a high and direct correlation between the price of the Australian Dollar and the interest rate.
The Australian Dollar is also correlated with the price of commodities, which have lost value with the crisis. It is; therefore, a currency tightly linked to the economic cycle, a fact that we can see graphically in the chart that shows the direct relationship between the price of the USA500 and the AUD/JPY pair.
AUD/JPY would be the most affected pair in case of a return to risk-off mode, and losses in the stock markets will resume. This pair has already corrected 50% Fibonacci of the last fall and has resistance in the zone of 67.70
Sources: tradingview.com