On Monday, the United States dollar performed worse than its major rivals. The U.S was filled with growing tension and unrest as Americans took to the street to protest the death of George Floyd, an unarmed black man who died at the hands of police officers in Minnesota.
EURUSD had a smaller than usual movement as investors remained cautious ahead of the ECB monetary policy decision and the U.S Non-Farm Payroll scheduled for announcement on Friday. The pair rallied to 1.1153 and reversed as data showed further economic contraction in May.
The GBPUSD pair rallied to 1.2506, the AUDUSD pair tested 0.6800 while USDCAD plunged to 1.3570, due to the dollar demand fall. USDJPY remained below 108.00. Gold settled higher around $1740, only boosted by a weaker dollar, as positive equity outlook already limited its upside potential.
Oil recovered losses towards the end of the day, as headlines indicated that Saudi Arabia is likely to increase the price for its oil bound for Asia in July. The Dow added 92 points, or 0.4%, at 25,475, the S&P 500 index put on a modest 0.4% at about 3,056, while Nasdaq Composite Index climbed 0.7% at around 9,552.
Civil unrest continued to escalate on Tuesday despite curfews and more uncertainty was added to the mix as US President Trump threatened to use the military to put an end to the riots and looting, resulting in more sell-off of the dollar.
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Rival currencies edged higher, supported by economic re-openings and declining new cases of Covid-19. EURUSD tested 1.1200 on the back of the news that Germany’s plans to lift travel restriction. GBPUSD reached 1.2575, despite mounting concerns around Brexit talks.
USDJPY finally broke out of its range soaring towards 108.80. Gold eased towards $1,728 a troy ounce due to increasing risk appetite. Crude oil continued its rally on news of more expected output cuts.
The S&P 500 added 0.8% to end at around 3,081 while the Dow Jones Industrial Average added 268 points, or 1.1%, to finish near 25,743. The Nasdaq Composite finished around 0.6% higher at 9,608.
Risk-on mode continued on Wednesday with the dollar falling further. EURUSD hit a daily high of 1.1251. GBPUSD rallied to tease 1.2614 but retreated due to uncertainty surrounding post-Brexit talks. USDCAD fell below the 1.3500 level due to upbeat news in Canada.
The Bank of Canada left rates unchanged and reports suggested that coronavirus’ economic impact appeared to have peaked in the country. Gold shed further and lost the 1,700 mark due to persistent high risk appetite. Crude oil retreated from its highs, despite OPEC’s willingness to extend output cuts, as members struggled with compliance.
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The Dow Jones unofficially closed up 522.55 points, or 2.03%, at 26,265.20 while the NASDAQ unofficially ended up 68.36 points, or 0.71% at 9,676.73. S&P 500 unofficially added 40.73 points, or 1.32%, to close at 3,121.55.
On Thursday, the ECB announced an extension of its stimulus scheme by 600 billion Euros till June 2021 or as long as needed. ECB’s President Lagarde also announced that she expects the economy to bounce back in Q3. These announcements helped the EURUSD break above the 1.1300 level.
GBP/USD reached fresh highs above 1.2600, despite tight bottlenecks in the Brexit talks. USDJPY settled above 109.00. Crude oil prices only advanced slightly as investors remained cautious amid the uncertainty surrounding additional output cuts from OPEC. Gold prices recovered to settle above $1,715.
The Dow surrendered its highs and ended up by around just 12 points, or less than 0.1%, near 26,282. The S&P 500 lost 11 points, or 0.3%, to close near 3,112 while the NASDAQ shed around 67 points, or 0.7%, to finish at 9,615.
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On Friday, the market was optimistic as the highly anticipated US Nonfarm Payroll report was delivered. It indicated that the US added 2.5 million Jobs in May and that unemployment was at 13.3%, much better than the previously anticipated 19.8%.
EUR, GBP, AUD and CAD eased from multi-week highs post NFP against the dollar, but closed the week with substantial gains, suggesting the movements were only corrective. Gold surrendered the $1700 mark again and eased to $1685 a troy ounce.
Oil prices rallied on Friday, with WTI adding over 5% and settling above $39.00 a barrel due to anticipation of OPEC’s extension of its output cut agreement. On Saturday, the OPEC nations agreed to extend the cut of 9.7 million bpd through the end of July. So we might see oil edge higher when markets open on Monday.
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Analysts at MUFG Bank point out that the actions announced by the European Central Bank, means a more attractive euro and they think that Friday’s EURUSD corrections to the downside could be an opportunity to position for more upside moves.
“The US dollar is now very oversold and hence we are cautious over very near-term EUR/USD correction lower. That would make sense technically considering the two-week percentage gain as of 12 noon London time is just short of 4%.”
“Excluding the tumultuous COVID-related volatility in March, this gain is the largest two-week gain since Feb 2016 and on most of the occasions when such a gain is recorded, spot corrects the following week. But if that does materialize it may provide opportunity to buy on dips.” – MUFG
Written by;
Nnadi Victor
An Independent Economics Researcher
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