Asia Open – Tuesday Rebound likely to be faded, Dollar slowly losing momentum, Oil rebounds, Gold shines

Global equities are edging higher following Monday’s drop as investors weigh optimism that intensifying global lockdown efforts along with historic stimulus efforts paint a positive outlook for a U-shaped recovery possibly later this year.  While US equities did open the week limit down, Monday trade did not see the need for circuit breakers.  The Fed’s latest round of stimulus is a gamechanger. The Fed launched unlimited QE, corporate bond intervention, enhancements to the commercial paper funding facility and telegraphed a main street lending program to small businesses.  The Fed has delivered three huge acts in March and this latest one should satisfy everyone, including President Trump.

Heading into the weekend optimism was high that Congress was going to quickly wrap up a $2 trillion stimulus package, but partisan politics appears set to delay things for possibly a few more days.  Lessons from the global financial crisis should remind lawmakers to not drag this out too long.  While risk appetite was dealt a blow after the US Senate failed again to authorize the huge fiscal spending bill.

FX

The dollar is falling against most of its major trading partners after the Fed got an A+ in maximizing policy efforts to alleviate liquidity concerns, snap the dollar’s momentum and pretty much doing everything that was asked of them to support the economy.  Currency wars are here to stay and right now the Fed’s efforts should derail a lot of the momentum that was building for the US dollar.

The British pound is the worst performing currency as they are somewhat late to the lockdown party and as the economy seems to be in a bad place with having to deal with a massive recession and little optimism Brexit uncertainty will remain in place for many years.

Oil

Today’s oil rally is probably more of a dead-cat-bounce as crude demand destruction will only get worse as global lockdown efforts are raised.  Oil is only rallying because the Fed’s unprecedented measures finally stopped the stronger dollar.  Crude prices will have wild swings, but no one is expecting the bottom to be already in place.  Oil is unlikely to produce a sustained rally on both demand uncertainty due to the global pandemic and as oversupply conditions remain firmly in place as it seems unlikely the Saudis and Texans will reach an agreement.

Gold

The Fed basically took spark plugs to gold’s recent rebound and sent it soaring higher.  Gold is surging higher after the Fed went above and beyond in unveiling measures to support the economy.  Easy monetary policy and eventually a boat load of fiscal stimulus will provide some key support for gold prices in the short-term.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.