European update – Oil, UK slump, gold, bitcoin

Energy Leads the Way

Stock markets are making decent gains across Europe and Wall Street is preparing for a healthy open as well, with futures up around 1% as the bell nears.

The rebound started late in the US session on Monday and was led by energy stocks as crude prices continue to rebound strongly. Production cuts combined with reopening measures across the US and Europe seem to be behind the rally in oil prices, although we’re still at extremely low levels and capacity is still fast running out.

Oil prices have hardly recovered though, with WTI still trading in the low $20 range, a level deemed disastrous not too long ago. It’s easy to get too carried away with high single percentage gains when prices have fallen as far as they have. The real test will come in two weeks when the June contract expires.

The API inventory data later today will be interesting, after reporting more than 58 million barrels of increases in the last five weeks. The EIA report is typically the more widely followed – and has reported more than 72 million barrels of inventory builds – but with so much attention on capacity – or lack of – at the moment, another huge build could take the wind out of crude’s sails.

UK services devastated by shutdown

The services survey data was, quite frankly, appalling and knocked the pound in the immediate aftermath of the release but the currency has since rebounded to make up around half of those losses. The services sector is a hugely important part of the UK, representing around 80% of the economy, so it perhaps shouldn’t be too surprising that such a terrrible number has taken its toll on the currency.

The decline in the pound wasn’t too dramatic though, with data continuing to get something of a free pass in the aftermath of the crisis. This is still extremely worrying for those hoping for a quick recovery though. Any hopes of a fast and strong recovery are fading fast.

Gold struggling for direction

Gold is continuing to hover around $1,700 as it continues to search for direction. It’s been consolidating for much of the last month and today’s price action doesn’t suggest anything is going to change just yet. It’s aligned itself more with risk aversion the last couple of days but that may change, with the dollar having recently been a far bigger driver.

Bitcoin eyeing new highs

Bitcoin prices have stabilized since popping higher last Thursday. It found support around $8,500 yesterday and looks to have its eyes set on last week’s peak. It’s run into some resistance around 9,000 this morning but may not hold very long. The halving event has lifted prices and could continue to do so over the next week as the event nears and the cryptocurrency potentially attract more attention.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam