15 MAY 2020

EUR/USD Forecast: Dollar stronger, pair mute

The EUR/USD pair has shown little life this last week, ending it barely changed on the downside at around 1.0820. The greenback was generally stronger backed by the risk-related sentiment and comments from US authorities. Investors turned wary after China reported a new, but a small outbreak of coronavirus in Wuhan, where the pandemic started. Fears of a second wave of contagion in Europe and the US surged, as economies begin to ease lockdown measures

Most of the dollar’s strength, however, came from Powell and Trump. The head of the Federal Reserve said that policymakers had not changed their posture on negative rates, dismissing chances of using such a toll. Nevertheless, he reckoned the harsh situation the economy is undergoing due to the pandemic crisis, which added to the sour mood. US President Trump also lifted the greenback by saying that it’s time for a stronger dollar. The lack of reaction in EUR/USD it’s maybe linked to the ongoing uncertainty about the future. The next two weeks will be critical, as it would be clear whether easing restrictive measures work or not. If the number of new contagions shoots, risk aversion could turn into panic selling, as it will delay any possible recovery to an unknown future. Dismal data both shores of the Atlantic has been “ignored,” with the pair unable to react to anticipated shocking figures. Inflation in the US contracted in April, while 2.98 million people filed for unemployment in the week ended May 8. Retail Sales plunged 16.4% in April the largest decline on record. On a positive note, the preliminary estimate of the Michigan Consumer Sentiment Index for May improved to 73.7 from 71.8, beating the market’s expectations of 68. German’s economy contracted by 2.2% in the three months to March, while the EU Q1 GDP printed -3.2%, slightly better than the -3.3% anticipated, although showing the extent of the damage to economic growth. The upcoming week will bring the May German ZEW Survey. The Economic Sentiment in the country is seen improving from -91.5 to -77.5, while for the whole Union is expected to have declined to -12.1 from 25.2 previously. Also, the FOMC will publish the Minutes of its latest meeting. More relevant, Markit will publish the May preliminary estimates of the Manufacturing PMI and Services PMI for the Union and the US. In general, and considering the slow comeback of economies, the indexes are seen bouncing from record lows, although holding within contraction territory. While macroeconomic data may continue to fail to trigger an immediate reaction, it will surely help to shape the market’s mood.
15 MAY 2020

Oil: Brent crude oil prices remain anchored near $30/bbl

According to analysts from Rabobank, the record build-up in inventory will need to be financed in the interim which should weigh heavily on the oil forward curve. For the mentioned reason, they view the recent strength in the calendar spreads as premature and likely to stall out and reverse under the weight of the coming surge of imports.

“We expect to see spot Brent crude oil prices remain anchored near the $30/bbl level until the massive glut of floating crude inventory begins to get worked down. In fact, we expect to see this week’s onshore crude draws reversed in the weeks ahead as more and more crude oil comes to port.” “We also expect the high crude oil inventory levels to weigh on the curve structure and pressure calendar spreads back lower. The back end of the crude forward curves should remain supported as a result of this expected spread weakness. Further to that point, we continue to view the back of the oil curve as having very attractive risk/reward metrics at current levels. In fact, it would not surprise us to see the back of the curve lead the market higher if and when global demand ultimately recovers.”
15 MAY 2020

US: No V-shaped recovery for industrial production

Data released on Friday showed industrial output in the US tumbled 11.2% in April. In records that go back over a century, never before has industrial production posted a larger decline than it did in April amid widespread work stoppages at factories all over the country to stem the spread of COIVD-19, explained analysts at Wells Fargo.

“Overall output plunged 11.2% in April, its largest monthly drop in records that date back 101 years. U.S. manufacturing has come a long way since 1919; that was the same year Edsel Ford became president of the Ford Motor Company, taking over the position from his father Henry. “Unlike the outlook for consumer spending, which we expect to snap back into positive territory in the third quarter, the outlook for manufacturing is not terribly bright. Even after a phased re-opening of the country is underway, the manufacturing sector will still be beset by delays from suppliers (which we are already seeing in the ISM report) as global supply chains are facing a test far worse than any previous economic slowdown or logjams created by a localized natural disaster.” “The weak global economy and the low price environment for oil and other commodities suggest diminished interest in taking on new projects for the mining sector. For all these reasons we anticipate industrial production will remain in negative territory throughout the entire course of 2020 before gradually improving in 2021.”

15 MAY 2020

Gold: settles $10 below seven-year tops

Gold prices (XAU/USD) rallied over 1% on Friday while settled the week nearly 3% higher, registering the best week in three. The yellow metal put up a great show in the past week and reached the highest level since November 2012 at 1751.80, as gold’s safe-haven appeal was bolstered by intensifying US-China trade tensions.

The Trump administration accused China of mishandling the coronavirus outbreak and the conflict between the two superpowers escalated after US President Trump said Thursday, he could cut ties with Beijing. Meanwhile, deepening global economic contraction, in the face of the pandemic, prompted investors to run for cover in the traditional safe-haven. The German and Eurozone economic output contracted in Q1 while the US Retail Sales slumped by a record of 16.4% in April. These macro news added to concerns over the bleak global economic outlook and, in turn, drove the bullion through the roof while the US dollar wilted on poor US economic data. From a broader perspective, the massive monetary and fiscal stimulus deployed globally to fight the unprecedented virus impact will continue to benefit gold, which is usually considered hedge-against inflation and currency debasement. In the week ahead, all eyes will remain on the US Federal Reserve (US) Chairman Jerome Powell’s testimony on Coronavirus Aid, Relief, and the Economic Security Act before the Senate Banking, Housing, and Urban Affairs Committee in Washington DC. In his speech last Wednesday, Powell downplayed the odds of negative interest rates, which temporarily dragged the prices lower. However, the recent consolidation of the rally above 1700 mark suggested, the precious metal was primed for a test of fresh multi-year highs.

Gold: Technical levels to watch

Gold prices closed the week at 1742.22. The next resistances are aligned at 1754.39 (Nov 2012 high) and 1760 (round number). To the downside, immediate support is seen at 1728.67 (May 15 low). A break below which the 1700 mark will be tested.

15 MAY 2020

Germany's DAX 30 Index

The DAX closed Friday on a positive note. However, on a weekly basis, the German benchmark suffered losses. The sharpest slump in growth since the great financial crisis had only a brief impact on share prices. Even the new skirmishes between the USA and China could not dampen the mood of investors for a long time.

The DAX ended Friday's trading with a plus of 1.24% at 10,465.17 points. On a weekly basis, the German stock barometer fell by 4.09%. The MDAX rose by 1.20% to 23,270.68 points and the SDAX advanced by 0.49% to 10,243.07 points. The technology-driven TecDAX rose by 0.17%.
On the corporate side, the focus was again on Wirecard shares. The stocks of the German payment services provider collapsed by 8.71%. They reached their lowest level since mid-September 2017 at EUR 72.35. According to a report by Reuters, the German financial supervisory authority BaFin is not planning a ban on short selling of Wirecard shares. Recently, hedge funds have shown a sharp rise in interest in selling the share. According to the Bundesanzeiger, about 10 percent of all Wirecard shares are currently being sold short. At the end of April, KPMG had published a special report, which, however, was unable to dispel the remaining doubts about Wirecard's business practices. As a result, the short sellers increased their positions and pushed the share price down by more than 42 percent since 28th of April. Among the winners in the DAX were the stocks of Volkswagen, Deutsche Post, Continental and RWE with a gain of 4.37 to 3.12%.