European Wrap – V-shaped optimism

Cautious Optimism

Not a bad start to the week, it has to be said, but it may leave a few people scratching their heads and wondering what exactly is going on at the moment.

We seem to be fluctuating almost daily between v-shaped optimism and second wave anxiety. It’s all a bit ridiculous. But then, it’s been that kind of year so far and I doubt it’s going to improve dramatically in the second half, not until there’s a vaccine and we can all start to move on with our lives.

It may not last too long from a market perspective either, the narrative seems to suit the situation right now with indices in a bit of a consolidation phase after a stunning comeback in the second quarter and the newsflow being an incredible mix of hard-to-analyse data, vaccine promise and worrying spikes around the world as economies continue to re-emerge from hibernation.

We’re also now in the period that is traditionally a little quieter from a markets perspective although this is far from your typical summer. For many of us, the summer holiday will have to wait until 2021 and that may affect how the markets behave in the next couple of months. Especially when you consider that it’s certainly not going to be a slow, uneventful summer.

So the week is off to a promising start, but let’s just say that I’m not convinced it will last, not the way these markets have been.

Oil above $40 but losing momentum

Oil prices are edging higher on Monday, reflecting the improving prospects for the global economy despite the growing number of setbacks we’re seeing around the world. WTI and Brent are now both above $40 but the rebound is undoubtedly stalling. Everything is pretty well priced in at this stage and unless we see a significant change on the economic outlook or these new waves of coronavirus, we may have to wait to see what’s agreed on the output side before we see any further big moves.

Gold running on reserves

Gold is up around half of one percent today but continues to lack the energy required to make the next big step. We haven’t even tested $1,800 yet and this is likely to be the big hurdle to the upside given how the yellow metal traded around these levels back in 2011/2012. The rally since early June has been running on reserves for some time, a correction may be on the cards.

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 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 BNN. 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