European open – US stimulus, oil, gold, bitcoin

Just Another Manic Monday

It’s frightening how normal it feels to wake up on Monday morning and see markets flashing red and down another 5%.

Source – Thomson Reuters Eikon

That is the world we live in now though, with the number of confirmed cases and deaths spiking around the world and the worst still yet to come. Governments and central banks, to their credit, are not taking the crisis lightly and have announced enormous stimulus packages to protect households and businesses, but even that hasn’t been enough.

As long as we continue to see this kind of exponential growth around the world, the case for a stock market bounce is weak. Even stability will be hard to come by. If investors hate uncertainty, they’ll despite this. The v-shaped recovery is a hope of the past, everyone is now just hoping that the temporary unemployment spike doesn’t become more permanent or we have a real problem on our hands.

The failure of US Congress to pass its stimulus package doesn’t help matters. It will not have solved the problem but it may to a lot to alleviate the pain for households and businesses in the US, which in turn offers some comfort to markets. I think it’s only a matter of time until a package is passed, the delay has been disappointing none-the-less.

With banks now forecasting hugely pessimistic growth estimates for the second quarter, as much as 30% on an annualized basis, bold and swift action is needed. Congress needs to get its act together.

Oil remains vulnerable after one of its worst ever weeks

Oil suffered one of its worst weeks ever, last week, and it could be in for another rough ride. Brent crude is off another 5% this morning and has already tested last week’s lows before running into some support. Given the scale of the losses endured already, you have to question just how much lower it can feasibly go but, as is the case with stocks, the outlook is so unclear that beyond price alone, there isn’t much of a bullish case.

Brent Daily Chart

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Gold erases early gains

Gold started the week on a positive note but those gains were quickly wiped out and once again the yellow metal finds itself in the red. Without wishing to repeat myself, gold is a safe haven in normal times but this is anything but normal. When you’re seeing so much wiped off the stock market on a regular basis, the shortfall has to be made up somehow and gold remains the favored option. So far, $1,450 has provided a floor but the trend is against it and sellers aren’t easing up.

Gold Daily Chart

Where does bitcoin stand?

It’s hard to see where bitcoin fits into all of this. A purely speculative instrument at this moment in time that has some appeal in times of currency issues but not so much at the moment. As in gold, it’s an easy option for liquidation to offset losses elsewhere if that is possible, which may explain the sharp falls earlier this month. The rebound over the last week doesn’t make a huge amount of sense though so I struggle to see it being maintained. It ran into resistance around $7,000 and may see further issues around here, should it approach again. The path of least resistance still looks to the downside.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

For a look at all of today’s economic events, check out our economic calendar.

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.