Investors across the globe have been injected with a renewed dose of confidence towards risk as governments relax lockdown measures and first human trial results raise hopes for a coronavirus vaccine.
The mood across Asian markets is quite encouraging and this positive vibe should support European shares later this morning. However, questions should be raised over the sustainability of the current rally and return in risk sentiment given how US-China trade tensions have made an unwelcome return. Concerns remain elevated over slowing global growth despite countries easing lockdown measures while fears rise around a second wave of coronavirus infections.
Global equity bulls may be in the driving seat for now, but bears are lurking around the corner waiting for another opportunity to pounce.
King Dollar to maintain grip on iron throne
The mighty Dollar should reign supreme this week despite the semblance of stability enveloping financial markets.
Although investors are clearly hopeful over economies re-opening after an extended lockdown period, global macroeconomic conditions remain depressing while renewed trade tensions are bound to hit sentiment. As risk aversion makes a return and market players rush towards safety, one of the first destinations is likely to be the Dollar.
Looking at the technical picture, the Dollar Index is experiencing a technical correction on the daily charts with prices trading below 99.50. Sustained weakness below this level may give way towards 99.00. Should this level prove to be reliable support, prices could rebound back towards 99.50 and 101.00.
Another day, same old story for Pound
The path ahead for the British Pound is filled with many obstacles and dead ends as fears over a no-deal Brexit return to the scene.
One can’t help but feel a familiar sense of déjà vu as the UK government prepares for its final round of talks scheduled in June to try and avert a no-deal Brexit outcome. To rub salt into the wound, economic data from the United Kingdom remains discouraging with the number of people claiming unemployment benefits soaring to 2.097 million in April.
With the fundamentals not in favour of the Pound, it may be only a matter of time till the technical paint a similar picture. The GBPUSD is under pressure on the daily charts and may trend lower if prices break below 1.2200. Sustained weakness below this level could open the doors towards 1.2000.
Euro eyes 1.10 but upside capped by fundamentals
Where the Euro concludes this week will be heavily influenced by the pending Purchasing Managers Index data scheduled for release over the coming days.
A disappointing set of economic data may put an end to the current rally with 1.1000 acting as a ceiling. Looking at the technical picture, the EURUSD remains a wide range on the daily charts with support at 1.0770 and resistance 1.1000. Expect the currency pair to find comfort within these levels until a decisive breakout is achieved.
Commodity spotlight – Gold
Gold should remain in fashion despite stock markets rising and economies easing lockdown measures.
The precious metal remains supported by global growth fears, lower interest rates across the globe and fears around a second wave of coronavirus outbreak. Gold is trading at levels not seen in more than 7 years above $1430 and has gained over 14% year-to-date. A solid daily close above $1430 may pave the way back towards $1765 and $1770. Alternatively, sustained weakness below $1720 could open the doors back towards $1700.