Uncertainty is gripping the global markets as COVID-19 continues to spread and economic activities are being halted.
Despite the green close for the Asian and European markets on Friday - supported by region-wide stimulus packages - US equities declined on the close. The Dow Jones Industrial and S&P 500 both capped off their worst weeks since October 2008 as the pandemic took hold.
Dow Jones lost 14% this week and closed below 20,000:
From a technical perspective, the Dow Jones Industrial’s further decline may fall to the support levels of 18,500 and 18,200, as it is already below the critical level of 20,000.
The massive intervention from the Fed and US government seems to have stemmed volatility, but the bearish trend is still dominant.
On the other side of the Atlantic, the European Central Bank (ECB) announced the launch of the Pandemic Emergency Purchase Program (PEPP) of €750 billion. The ECB’s plans for bond purchases this year run to €1.1 trn, the biggest amount ever.
A decision like this was expected from their last meeting; this belated announcement calmed the European bond markets, with the spreads of two-year bonds narrowing.
EUR/USD plunged last week to its lowest level since 2017, with the main driver for this sell-off the markets’ desire to hold US dollar.
Technically speaking, as you can see in the daily chart below the down trend is more pronounced. Closing below 1.17 increases the probability of targeting the support at 1.055/1.050.
The EU has suspended the fiscal parameters of the Stability and Growth Pact, which would help governments to take further fiscal steps to minimize the impact COVID-19 outbreak and the sudden stop of most economic activities.
The down trend is dominant for the German DAX, which reached its lowest level since 2013 last week. The German index closed in Green on Friday, but we believe this recovery will be short-lived and a drop toward 7,500 is expected as the selling pressure and uncertainty continue.
Meanwhile Bank of England cut its interest rates to 0.1% and added £200 bln. further to its quantitative easing (QE) program. This measure was taken after increased volatility in the gilt markets and the freefall of the British pound, as investors fled away from UK assets.
GBP/USD broke the major support levels of 1.20, and the bearish signal on the monthly chart below followed through. This bearish setup and price action puts the level of 1.1 on the spot.
The FTSE100 has plunged to its lowest level since 2013. We could see a rebound to resistance levels at 5,600 and 5,800.
However, the downtrend also is till on play and breaking 4,800 to target 4,500 and 4,200 is still a high probable scenario.
XAUUSD is still under pressure as markets favor US dollars. Gold failed to close below 1480s levels and that suggests a rebound toward 1,555. On the other hand, after any successful close or break below 1,480 levels we would expect another wave down toward 1,435.
Oil (WTI & Brent) is still suffering the double hit from collapsing demand and the Saudi/Russian price war. From a technical perspective, WTI stabilizing below 32 levels could be the ‘new normal’ and a downside break for the support at 28 would commence next week. This leg down may target 25 and 22 levels.
What data are we waiting for this week?
Finally, there are still many unknown factors in this global pandemic We don’t know how many people will be infected, for how long businesses will be frozen, and the duration with the extend of the lockdown of borders around the globe. Meanwhile, we can expect the volatility and accommodative monetary policies to endure for the foreseeable future.