(09 JUNE 2020)DAILY MARKET BRIEF 2:Gold remains offered above the $1700

The US dollar remains weak, but the capital outflows appear to be losing some pace as investors question whether it is time for a downside correction in equities. The US 10-year yield remain capped below 0.90%.

Gold remains offered above the $1700 per oz, even though the rise in US yields increases the opportunity cost of holding gold, particularly at these high levels, where the upside potential is limited. But, there is a clear restraint in selling the precious metal further below $1670, as the levels in equity markets suggest that a downside correction would be healthy and no investor wants to get caught in a renewed risk sell-off having liquidated gold positions.

There is a toppish feeling in EURUSD as the sell-off in US dollar loses pace. Given that the soft USD has been a major catalyzer in the latest euro rebound, a broad-based recovery in the dollar should easily wipe a part of the recent euro strength. But the hope of seeing a 750-billion-euro fiscal package materialize and the 600-billion-euro extension to the European Central Bank’s (ECB) PEPP purchases should throw a floor under an eventual euro sell-off. The single currency should find a higher ground compared to the beginning of the April – June rebound. Intermediate support is seen near 1.1230 (minor 23.6% Fibonacci retracement on April – June rebound) and solid buyers are waiting before 1.1135 (major 38.2% retrace).

Cable, on the other hand, runs into a solid resistance near its 200-day moving average on the back of a stronger US dollar and given the lack of a solid justification to carry its appreciation against the greenback further. The UK and Japan start trade talks, as Brits seek new trade partners to temper the negative shock of a no-deal divorce from the EU. But the EU trade gap will be difficult to fill and a no-deal Brexit will certainly lead to a softer pound valuation in the medium run.

WTI crude steadies near $38 per barrel after decent profit taking capped the rally below the $40 mark following the OPEC+ decision to continue curbing supply. A possible deterioration in risk sentiment could encourage a deeper downside correction in equities and in oil, but price retreats in oil markets could be interesting dip-buying opportunities for investors betting on a gradually improved global demand as businesses and travels get back on track.

By Ipek Ozkardeskaya