Macro economics

Analytics on 24/06/2020. Risk sentiment turns sour, sending gold prices to 8-year highs

Following a mixed session in Asia, European stock markets opened lower on Wednesday and extended losses during the session as investors shifted their focus to a potential second wave of the coronavirus pandemic amid rising cases in several countries – there are new outbreaks in Germany and Japan and a surge in the US. On the data front, Germany June Ifo business climate index arrived at 86.2 versus 85.0 expected. However, better-than-expected data did little to ease the selling pressure in stock markets. On the negative side, the US is reportedly weighing new tariffs on $3.1 billion of exports from the EU and the UK. Against this backdrop, the UK’s FTSE 100 sheds 2.40% to 6,168. Italy’s FTSE MIB edges lower by 1.59 percent to 19,526, France’s CAC 40 loses 2.13 percent to 4,910, while German DAX 30 declines by 2.36 percent to 12,226. U.S. stock index futures are pointing to a lower open for US stocks on Wednesday.

In currencies, EURUSD turned negative on the day after yesterday’s rejection from the 1.1350 local resistance. The euro failed to derive support from a decent economic report out of Germany and remained on the defensive marginally below the 1.13 handle. In part, the common currency was pressured by comments from the German Health Minister Jens Spahn. According to him, Coronavirus remains a risk after the western German state of North Rhine-Westphalia, and it’s important to keep making clear that the virus is still there. Meanwhile, The European Central Bank chief economist Philip Lane pointed to some signs of initial recovery in the regional economy. From the technical point of view, the pair needs to hold above the 1.1270 region as a break below it will send the prices to the 1.1230 net support area.

Meanwhile, oil prices extend a bearish correction from March 6 highs registered on Tuesday marginally below the $44 handle. Brent crude briefly dipped below $42 and trimmed intraday losses, changing hands around $42.30 at the time of writing. The futures are struggling to extend the recent rally as traders proceeded to profit-taking amid worsening risk sentiment. Later today, the EIA will reveal its weekly inventory data that could affect short-term dynamics in the market.

Gold prices surged to nearly eighth-year highs, extending gains for the fourth day in a row on Wednesday. The bullion rallied to $1,778 and is now threatening the $1,780 region that will bring the $1,800 level in market focus. Despite the prevailing risk aversion, gold prices may struggle to refresh long-term highs in the immediate term due to some overbought signals, suggesting a downside correction could take place. If so, the nearest significant support now arrives at $1,765.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 0,25 %
Switzerland 3 Month LIBOR Range -0.75 %
United Kingdom Repo Rate 0,10 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 0,25 %
Australia Cash Rate 0,25 %
Canada Overnight Rate Target 0,25 %
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