European update – Markets, COVID-19, gold, oil

That Didn’t Last Long

The stock market bounce was modest and short-lived in early European trade on Tuesday, as investors continue to fret about the likelihood of COVID-19 becoming a full blown pandemic.

Source – Thomson Reuters Eikon

The spikes in the number of cases in South Korea, Italy and Iran has made investors very nervous and with cases being confirmed in other countries all the time, they are right to be so. Buying the dips has proven a good strategy at times over the years, with markets recovering much quicker than they arguably should but more patience may be required this time.

Wall Street is still on course for a slightly positive open but given how quickly Europe has turned south, I’m not confident it will last. Perhaps investors in the US still feel a little sheltered from the direct effects of the spread at the moment but should it accelerate in Europe and Asia, I don’t think they will for long.

Gold seeing profit taking but safe haven status remains in tact

Gold is continuing to pare gains on Tuesday, even as we see broad risk aversion across the markets. Gold has been on a stunning run this month so perhaps we’re just seeing a little profit taking after it came close to $1,700. There could also be a knock-on effect from the severity of the declines across the globe on Monday, but it’s tough to say for sure. What I would say is that gold’s safe haven appeal remains firmly in tact which will likely support prices once the profit taking passes, assuming of course that sentiment remains bruised.

Gold Daily Chart

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Crude prices vulnerable as cases spike

Oil prices are naturally feeling the full wrath of the coronavirus spread, with Brent now not trading too far from its February lows and momentum not its friend. There may not have been full agreement among OPEC+ behind the need for further cuts to support prices a few weeks ago but the latest developments may change things, especially if the situation deteriorates as it looks likely to. In the meantime, $54 is looking vulnerable.

Brent Daily Chart

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.