The US dollar is weaker across the board on the back of a resilient risk appetite, but a worse than expected US GDP read could change the appetite
for dollar. Demand in other safe haven assets, such as US treasuries and gold, remains solid.
It is better to be prepared against an
eventual risk sell-off than being caught unhedged - this is what the activity in gold tells us. Gold finds decent dip buyers below the $1700
per oz and is set to return to its safe zone, near the $1725/oz.
The USDJPY doesn’t gather the necessary strength to push above the 108
mark, and the USDCHF consolidates below 0.97.
The EURUSD cleared the critical 1.10 offers and advanced to a nearly two-month high. In
her speech yesterday, the European Central Bank (ECB) President Christine Lagarde warned of a ‘medium’ or ‘severe’ recession scenarios,
which could cause 8 to 12% contraction in European economies this year. Lagarde’s dovish stance and a broad-based decline in US dollar gave a
boost to the euro, but the upside potential will likely remain limited by the ECB sceptics and the 1.10 handle should not provide a solid
support to the single currency. A slide below the 1.10 mark is highly likely. On the topside, offers are eyed into the 1.11 mark, the April – May
positive trend ceiling. Also, Lagarde said there will be no new euro debt crisis after the pandemic, whereas massive fiscal packages
deployed by governments to fight the coronavirus-led economic damage is already being a matter of major controversy among European
economies and a worry for the long-term euro outlook.
Cable remains offered near its 50-day moving average (1.2350).
WTI
crude, on the other hand, retreated below $32 per barrel, after running into a brick wall near the $35 mark. A gradually improving global
demand and limited supply will likely give support the global oil market. Oil traders will be watching the weekly US oil inventories data
today. A third consecutive weekly decline in US inventories should throw a floor under the WTI’s downside correction within the $32/30
area. But it is worth noting that this week’s data, even favourable, could have a softer positive impact on oil prices compared to the
previous two weeks, when the unexpected inventory declines caught investors by surprise. This may not be the case this week. The market
expectations are now adjusted to the downside and the current prices already reflect a lower supply dynamic. This being said, the
expectation is a 2.5-million-barrel decline, versus last week’s minus 5-mio-barrel print. There is still room for a negative surprise.
However, an unexpected positive read could further dent the mood and encourage a deeper dive toward, and possibly below the $30-support.
By Ipek Ozkardeskaya
