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Focus shifts to commodities as stocks and Forex settle

Fri, 07/03/2020 - 21:19

After months of intense volatility, this past week has been relatively calm overall. Both the S&P 500 and the US dollar appear to have stabilised and are currently holding steady within a tight range.

The biggest swings were instead seen in commodities, with gold and oil the two stand-out performers of the previous week. Despite the FOMC June minutes’ hints that the Fed has begun to adopt a “wait-and-see” approach, both the black and yellow variety of gold demonstrated clear trends to the upside.

Many have attributed crude’s gains to the general uptick in the appetite for risk assets combined with API data showing the biggest oil draw this year. Perhaps counter-intuitively, improved investor outlook was also touted as the reason for gold’s good fortunes of late. As it happened, the bullish sentiment on stocks and energy resources have quite logically resulted in reduced demand for this crisis’s preferred safe harbour, the greenback. And now that the worst appears to be behind us, interest in fiat alternatives such as crypto and gold is back on the rise.

FOMC minutes

After gold recorded a new yearly high ($1786) and Brent jumped almost 5% in the space of a week to within touching distance of $42 a barrel, all eyes were on Federal Reserve Chairman Jerome Powell as the FOMC’s June minutes were finally released. Positive notes for gold included Powell’s pledges to support the US economy “for as long as needed” and to “increase [its] holdings of Treasury securities and agency mortgage-backed securities over coming months at least at the current pace”.

However, as touched upon above, comments that would seem to suggest that the Fed is slowly switching to a wait-and-see stance mean that markets would be wise not to expect any stimulus expansion in the short term. Going forward, this could well spoil investors’ appetite for commodities, pushing prices generally lower.

Indeed, the Fed Chair’s remarks to Congress posit that the FOMC is “committed to using [its] full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible”, but warns that “when economic and financial conditions improve, we will put these tools back in the toolbox”. This approach leaves a certain air of uncertainty as to the future, which could prompt investors to hold on to their cash for a while longer.

Technical analysis

The formation of a double top below Brent’s resistance level between 42.40 and 43.88 is still a possibility amid negative RSI divergence suggesting the bulls are running out of steam. Before we can talk about a reversal of the current uptrend, however, we would need to see a daily closing price below 34.78, opening the door to a potential drop below the key psychological level of $30. But if Brent can break above its local resistance, it would then undoubtedly set its sights firmly on $50 a barrel.

Meanwhile, gold prices are priming to test the 38.2% Fibonacci expansion at 1789.78. If they can break above this mark and remain there overnight, that would open up the 50% level at 1827.82. At the same time, gold’s recent range top at 1747.74 has now become its local support. Any fall below there would pave the way for a return to 1679.81-93.92.

Golden ticket

While many may be concerned by the present economic uncertainty, everyone knows that volatility is a trader’s best friend. The bottom line is, it doesn’t matter which way the market is moving as long as it’s moving. With Libertex, you can always find an opportunity whatever the dominant trend. Take a look at Libertex’s extensive commodities offering and see what catches your fancy. Libertex offers CFDs in a range of crude oil varieties, including Brent, WTI and Light Sweet. And, if metals are more your thing, you can trade Gold just as easily. Register an account with Libertex today for your piece of the action!

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