Asian stocks were mixed on Wednesday in a risk-off session. The New Zealand dollar fell after the country’s central bank boosted its asset purchase program and indicated openness toward negative interest rates. Earlier, a tweet from President Donald Trump, complaining about China trade policy, sent equities into a fleeting swoon and showed how sensitive the market remains to trade-related developments. Druckenmiller, the legendary hedge fund manager, said the prospect of a V-shaped recovery in the U.S. is “a fantasy” and the risk-reward calculation for equities is the worst he’s seen in his lifetime. Druckenmiller is not alone in the market to hold back from dominating optimism over reopening the economy. Many economists also show doubts over the prospects of the overall economy. These all add on to today’s risk aversion.
USD was flat on Wednesday as more investors focus on Fed funds in negative territory than the souring of the risk mood. Though Fed officials have consistently pushed back in the adoption of sub-zero rates, bets on negative yields are likely to persist. As Ray Dalio also pointed out, The largest monetization of debt, the pushing of bond yields to around 0% ( while necessary) will reduce the appeal of holding dollar -and other reserve-currency-denominated debt. While USD is put on hold, Gold is likely to benefit from the QEs and currency debasement.
Copper prices dropped on Wednesday as investors saw signs of a second wave of coronavirus infections that could add more pressure to the already-hit global economy. China and South Korea, which were able to contain the outbreak previously, are now facing new clusters of infections after their economies reopened. This dampens the optimism that the economy could recover fast and indicates that there seems to be a long way to go in economic recovery.
Overnight, oil prices slipped lower from it’s 5-week high on concerns that relaxing virus lockdowns too early may lead to the much dreaded “next-wave” of virus cases and derail any hopes of a further recovery. Further, research consultancy firm IHS Markit doesn’t see the market recovering to pre-virus levels until the later half of 2021. Despite oil coming to test it’s support at 28.65 level, it is technically still in a sideways range configuration on the longer timeframe. In line with oil price, the CAD weakened against the USD as well. However, the CAD is now testing it’s resistance and is now looking for a possible strengthening as Canada’s PM, Justin Trudeau looks to “very cautiously” reopen Canada’s economy and borders.
Technical & Trade views
USDCAD (Intraday bias: Bearish below 1.40704)
Price drifted sideways and still holding below 1st resistance at 1.40704, which is also a key Fibonacci retracement level at 61.8%. A short term drop below 1st resistance at 1.40704 towards 1st support at 1.40046 is expected. Stochastics is testing resistance where price reacted in the past as well.
UKOIL (Intraday bias: Bullish above 28.66)
Price drifted lower and came close to 1st support at 28.66. As long as price holds above 1st support, a short term bounce towards 1st resistance at 30.67 is expected. Stochastcis is also reacting above support level where price bounced in the past. It is important to note that oil price is also within a larger broad sideways range.
XAUUSD ( Intraday bias: bearish below 1715.70)
We turned bearish as price bounced off 1st support at 1693.50 where the horizontal swing low support and the trendline are.Price is approaching 1st resistance at 1715.70 where the 76.4% fibonacci retracement and trendline are.. Price is likely to reverse off 1st resistance towards 1st support. Ichimoku cloud is also showing bearish pressure.
XCUUSD ( Intraday bias: bearish below 2.4258)
We turned bearish as price is approaching 1st resistance at 2.4258 where the 78.6% fibonacci retracement and 61.8% fibonacci extension are. Price is likely to drop towards 1st support at 2.2852 where the 50% fibonacci retracement and horizontal overlap support are.