(17 AUGUST 2020)DAILY MARKET BRIEF 2:US-China tensions are leading risks

Gold remained bid above the $1930 per oz, but investors remain in a wait-and-see mode following the severe downside correction that dragged the price of an ounce by up to $200 last week. The recovery in US yields should also limit the appetite in the yellow metal as investors now question whether there is potential for sustainable gains above the $2000 per oz. Given the mixed feelings, gold could not be a go-to hedge in case of renewed risk-off pressures across the global markets. The critical support to the medium-term positive trend stands at $1845 per oz. A move below this level should point at a bearish trend reversal and pave the way for a deeper downside correction towards the $1500 per oz.

With gold looking momentarily out of the race, the Swiss franc is where investors seek refuge. The USDCHF is under an increased downside pressure, but the Swiss National Bank (SNB) will likely step in to prevent the franc from strengthening further.

The direction in EURUSD and GBPUSD remains mostly determined by the US dollar appetite. But given the overstretched long positions in both the euro and the pound against the greenback, the risks remain tilted to the downside.

WTI crude is still at the make-or-break level near $43 per oz, its 200-day moving average. Bulls remain optimistic that, though revised to the downside, the recovery in global oil demand would continue giving support the market. Yet, a demand-focused advance is somewhat of a wishful thinking given the rising Covid cases and uncertainties regarding the pace of the global economic recovery. Hence, inability to break above the 200-day moving average could trigger a medium-term slide towards the $40 mark and below.

We have a light economic calendar at the start of the week. Investors will watch the Empire State Manufacturing index on Monday and the Reserve Bank of Australia’s (RBA) meeting minutes on Tuesday.