European Update – Increasing Optimism

Grand Reopening > US/China Conflict

Stock markets are making strong gains once again on Wednesday as investors turn a blind eye to increasing friction between the US and China and focus on the exciting prospect of economies reopening after months of lockdown.

The soft reopening so far appears to be going well and is leading to further easing measures, including the prospect of travel again before the summer is over which is coming as a huge relief to those in the industry that have been ravaged by the crisis.

The stock market recovery appeared to stall in May but it seems to have found some momentum once again, with the news of human vaccine trials naturally aiding the move. While the data we’re seeing so far is encouraging, there may be diminishing returns so the longer we go without a vaccine or cure, the worse the data could become. Thankfully, what we’re seeing in both of these cases gives us cause for optimism.

Tensions between the US and China are hotting up and Hong Kong is proving to be an interesting battle ground. The US is now believed to be pondering sanctions, as China prepares to vote on a controversial new national security law to be imposed on Hong Kong. As yet, the strained relationship between the US and China hasn’t hampered markets too much but that could quickly change.

Oil looking strong

Oil is  slightly paring gains today but continues to make impressive gains more broadly. Naturally, reports of economies successfully easing restrictions is providing a significant boost to oil prices, with the reopening of borders in the coming weeks only further supporting demand and therefore prices.

While the reopening will be gradual and people will take time to emerge from the safe shelter of their homes, particularly when it comes to foreign travel, these are hugely positive moves for oil producers as prices close in on $40. It’s now a question of when they’ll turn on the taps again and how much they choose to or even how fast they’ll be able to.

Gold facing some big tests

Goldis edging lower again today and closing in on $1,700. The yellow metal seemed to lose all momentum not long after eventually breaking through $1,750 resistance. A break back below $1,700 would be troubling for gold, from a psychological perspective, but the $1,660-1,680 region is far more key. A break of this would spell trouble for gold.

Bitcoin fighting back but $8,000 looks vulnerable

Bitcoin found some support around $8,500 this morning and has reversed course to test $9,000, around where it is already starting to struggle. It’s not looking great for the cryptocurrency, with $8,000 being the next major level below. A break of this and it will be like the halving event never happened and all the gains that came its way during that high exposure period will have been lost. Nervy times.

Economic Calendar

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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