S&P 500, Crude Oil, Gold Prices, US Dollar: Markets Face Tipping Point
Coronavirus fears continued to spread into financial markets as equities wrapped up a dismal month. The S&P 500 and Dow Jones Industrial Average erased January’s upside progress in their worst week since late July. Sentiment-linked crude oil prices followed the selloff on Wall Street as prices closed at their lowest in over one year on the weekly chart. Anti-fiat gold prices closed at new 2020 highs.
A closely-watched segment of the U.S. yield curve inverted again for the first time since October 2019, raising concerns about a recession once more. The haven-linked US Dollar scored some gains against “pro-risk” currencies such as the Australian Dollar and New Zealand Dollar. It succumbed to selling pressure against the Euro and British Pound. The Fed has more room to cut.
Investors are doubling down on dovish expectations in the United States. Odds of a second 25-bp rate cut at the end of this year from the central bank are fully baked in according to futures markets. Such an outcome can help alleviate pressures in emerging markets and developing Asia. Against a basket of ASEAN currencies, the US Dollar had its best week since May.
After an extended holiday, Chinese markets are expected to come online Monday and alleviate the cautiously thinner trading conditions. They do have some catching up to do if markets begin February in a pessimistic mood. The S&P 500 is also at risk if the Shooting Star candlestick on the monthly chart sees follow-through. This is a sign of indecision which can precede a turn lower.
Top-tier event risk for sentiment-linked currencies such as the Australian Dollar, aside from market mood, will be the RBA rate decision followed by commentary from its governor. The NZD has fourth-quarter employment statistics to watch. At the end of the week, all eyes will be on the Canadian and United States jobs report. Can these offer a turning point for the markets?
The Australian Dollar is under plenty of fundamental pressure as coronavirus fears drains support from all risk-correlated assets. While this dynamic will endure, Australia’s central bank may buy Aussie bulls some time.
Gold prices may suffer if President Trump’s State of the Union Address hints at future expansionary fiscal policies and cools 2020 rate cut bets along with demand for anti-fiat hedges.
The Canadian Dollar continued its run of weakness last week; how things shape up this upcoming week will depend on whether it can find support at a big spot on the charts.
A raft of fundamental drivers has pushed gold against a short-term resistance level, which if broken could lead to larger gains for the precious metal, according to the longer-term charts.
FTSE 100 drops to middle of its range following sharp sell-off, while the S&P 500 is at risk of further set-backs.
Bulls came back into the British Pound after the BoE rate decision, posing a topside break of a bull pennant formation in GBP/USD.
The Mexican Peso seems to have lost the upper hand against the US dollar and is facing a downward correction, supported by its weakening economic data.
Global equity markets have been closely monitoring the spread of the coronavirus as China shutters businesses and quarantines cities. With few precedents to look to, uncertainty may reign.
The US Dollar is being pulled in opposite directions as the appeal of its unrivaled liquidity clashes with swelling Fed rate cut bets amid increasing turmoil market-wide.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.