Weekly Market Analysis: May 31–June 6, 2020
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While many countries are easing their lockdowns, stock indices are spiking while gold seems to be overpriced, however, will ongoing protests affect US markets? Here is this week’s weekly market analysis, including a look at Crypto, Forex, and Oil.
Crypto
Ethereum Leading the Way
Many cryptocurrencies performed well during the last week or so, especially ethereum (ETH). On Saturday 30 May, it broke out of a month-long consolidation and closed the day firmly above $240. This looks like a meaningful breakout which has the potential to ultimately move the coin back to the $287 region, where it was trading at earlier this year.
Bitcoin (BTC) also gained some ground last week, but it doesn’t look extremely bullish. It’s still stuck in a range that’s starting to take the shape of a wedge. The price action preceding this wedge was bullish, so perhaps we’ll see an upward breakout in a week or two.
Forex
Weakness in the USD and Yen
The U.S. dollar was notably weak last week, losing ground against all major currencies, except the Japanese yen. So, among the major currencies, the dollar and the yen are by far the weakest at the moment, with the yen right at the bottom.
The euro posted an impressive performance against the dollar last week, with the EUR/USD rising more than 200 pips. The New Zealand dollar and Australian dollar (commodity currencies) rose moderately against the U.S. dollar, with the Canadian dollar (also a commodity currency) gaining a solid 200+ pips against the dollar. Of course, the rising oil price is positive for the Canadian dollar.
The EUR/USD is certainly a pair to watch in the week ahead, especially because sellers have repeatedly been unable to gain traction below 1.09. Of course, the euro is especially strong against the Japanese yen, so keep an eye on this pair as well.
Stock Indices
The S&P 500 Leads as Global Stock Indices Continue to Recover
Since the S&P 500 bottomed out in March, it has made an immaculate recovery. Investors are optimistic about the gradual easing of the COVID 19 lockdown, especially in the United States where at least two states have already lifted their lockdown restrictions. Of course, the U.S. government stimulus and that of other leading economies also boost investors’ risk appetite. We will keep an eye on how ongoing protests will impact the momentum to reopen businesses and return to normal.
Other Stock Indices like the DAX (Ger30), UK100, and CAC40 have also recovered quite well, with the latter two lacking the aggressive rise of the DAX and especially the S&P 500.
Energy
Still Bullish on Oil
Oil prices continue to rise as the energy market recovers from its recent slump. With several countries around the world easing their lockdown restrictions, more individuals and industries are using fuel again. Smart investors also know that the current prices of oil are well below the average expected prices of 2021, so this is a good incentive to move capital into oil. Brent crude oil, for example, is expected to trade at an average price of just under $50 in 2021, while the current price is $37.70.
Precious Metals
On the weekly chart, gold printed a doji candle last week. It seems like bullish market players are finding it hard to maintain the currently elevated prices. Using the relative strength indicator on the weekly and monthly charts, we also notice strong negative divergence in the gold price. This means that the price could see a substantial correction soon, especially with many countries relaxing lockdown restrictions and continued positive risk sentiment.
Conclusion
- Pay attention to ongoing protests and how they affect momentum
- The outlook on WTI and Brent crude oil remains bullish.
- Global Stock Indices look positive, especially the S&P 500.
- Ethereum technicals point to more gains.
- Bearish on the U.S. dollar and Japanese yen.
- Be careful with long (buy) gold positions.
