Mixed bag on the currencies market – Market Analysis – May 11

By: Miguel A. Rodriguez

09:45, 14 September 2020

Awaiting the easing of lockdown measures, global equities lose steam

Global overview

In today's session, there has been no significant headline that has acted as a market-mover or defined the price action of the market, as it happened in the past weeks with the economic data, the earning season, or the statements of central banks.

After a quiet Asian session, the stock markets began with slight gains, but as the day went by, the market sentiment was souring.


The European stock markets ended up closing with losses: Germany30-0.50% and the North American indices remain almost unchanged.

The market needs incentives to continue rising, say most market analysts. Once the Crude Oil market stabilized, and with it, a very disruptive element in the evolution of financial markets has been avoided, all eyes are on the development of the economic reopening in different countries. But there are still elements of uncertainty that, at the moment, cannot be evaluated with the available data.


One is the evolution of consumer demand, and this will depend to a great extent on the recovery of the labor market and the other the risk of a second wave of the pandemic, a fact that if it occurs would be a dangerous headwind for the economy.

Time must pass to have a clearer vision of the situation, and that is when investors will make decisions that set market trends.

Meanwhile, the market has been losing volatility and still maintains an optimistic bet, although without deciding to gain momentum.

FX

The same is right in the foreign exchange market. With interest rate differentials between the different currencies at minimum levels since all central banks have adopted equal expansionary measures that have brought rates close to zero, this element no longer is a market-mover.

Today, the Dollarhas strengthened against all currencies, in large part due to a small upturn in treasury yields, which are still at the lowest levels in their history. Market movements now have a more technical condition than anything else.

Copper

The market movement of COPPER has been exciting. It is a commodity linked to the economic cycle, with a high correlation with the stock markets and with currencies such as AUD/USD, as we can see in the chart (Copper in brown line).


Copper has corrected firmly to the downside by forming a bearish candle on the daily chart and stopping at the support level around $2,380 per pound. 


A daily close slightly below these levels would anticipate new losses that could reach the $2.2500/pound zone in the first place, 0.382 Fibonacci retracement.

Its correlation with AUD/USD is high. The pair has also fallen, pressured by the strength of the Dollar, and has reached the first support trend line located at 50% Fibonacci retracement of the last bullish leg, and MA100 hours at 0.6470. Below these levels, next support is situated at the 0.618 Fibonacci retracement 0.6450; under this level, target is at 0.6375

Although we are entering a period of gradual recovery in the market, corrective movements such as the one indicated will be increasingly frequent, according to market analysts. 


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