Analytics

Expert Review: Oil under attack and gold on the rise?

Mid-term Analytics by Olymp Trade Experts


COVID-19 is still spreading around the world, causing concern in the market. US Federal Reserve hints at the revision of the QE program. In this article, Olymp Trade analysts show how this affects the commodity, foreign exchange, and cryptocurrency markets.

 

Weekly Trends

  • EUR/NZD  −1.24%. Trading for a fall with $100 and X200 multiplier could have earned $248.
  • NZD/JPY  +2.16%. Trading up with $100 and X200 multiple
  • could have made $432.
  • AUD/JPY  +1.94%. Trading up with $100 and X200 multiple could have made $388.

 

Commodity Markets

Gold has returned to the level of $1800 per troy ounce. Despite short-term hurdles, some analysts remain optimistic, thinking that the price could return to $1,900 by the end of this year.

If the market sees that the US Federal Reserve is taking action to tighten its monetary policy, this would mean a bottom in gold (and silver) prices. Traders who bought the rumors about the Fed’s actions will be selling the facts. This should take the bearish pressure off the precious metals and indicate a bottom for a dip.

A similar scenario already happened in December 2015. The sharp decline in metal prices then led to a six-month rally. The reason and the period when this growth can take place remain to be understood. Analysts predict that the actual rate hike could occur no earlier than 2023. Will it be a QE cutback that may be announced in the coming months?


Brent crude oil reached a local minimum just below $65 per barrel, but later the quotes returned to $70. From the technical analysis point of view, the asset looks rather weak.

Fundamentally, oil is also under pressure on the concerns about the outlook for global economic growth amid yet another COVID-19 outbreak in many regions of the world.


The number of new cases of COVID-19 in the United States has exceeded 140,000. This is almost 50% higher compared to the number of new cases a couple of weeks ago. The worsening epidemiological situation in the US has already affected key macroeconomic indicators and signals a slowdown in the US economic recovery.

There is information that China has closed one of the terminals of the world’s third largest port in terms of cargo turnover, after detecting a case of infection of an employee with COVID-19. Bloomberg experts again warn that repeated restrictive measures threaten already fragile supply chains, as well as global trade in general.

 

Currency Markets

The main event of the week was a speech by Fed Chairman Jerome Powell at a symposium in Jackson Hole on August 27. This time the summit was transmitted online.

As expected, Powell slightly adjusted the central bank’s approach to the monetary policy. The Fed is willing to allow inflation above 2%, but only for a short period of time. Moreover, in periods where inflation is falling below 2%, action is likely to be taken in order to keep it above that level.

This most likely means that the current stimulus programs will remain unchanged amid a recovering labor market and a strengthening U.S. economy. Meanwhile investors are awaiting further hints on the asset buyback program and the size of the Fed’s interest rate ahead of the Fed meeting on September 21.


By the end of the week, almost all major currencies showed a decline. Market participants preferred to buy USD. The collapse of AUD and NZD triggered a flight from risky assets. CHF and JPY acted as defensive assets.

The New Zealand dollar collapsed to 0.6800 after a lockdown by the New Zealand government. The Australian dollar first fell in price against the dollar after the release of the minutes of the RBA meeting, which says that the Central Bank does not plan to reduce the volume of purchases of bonds at this stage. Then the fall in the exchange rate intensified against the background of the peaks reached in the number of COVID-19 cases.

 

Cryptocurrency Markets

Bitcoin tested the $50,000 psychological level. The uptrend continues, causing rapid growth in the altcoin market. The BTC dominance index continues to decline and is at 44%. Over the week, the price of the Avalanche blockchain platform token has grown the most. The price of AVAX has grown by 120%. Cordano added more than 35% and updated its all-time high. As expected, the market switched to FOMO mode, the fear and greed index reached 79 points.


Meanwhile, China, on the one hand, continues to test the digital yuan, and on the other hand, is pursuing a prohibitive cryptocurrency policy. The digital yuan was first used to pay commissions for the delivery of goods in a futures transaction on the Dalian Commodity Exchange. At the same time, a court in one of the provinces ruled that investment or trading in cryptocurrencies is not protected by Chinese law.

And the authorities of another province demanded that hydroelectric power plants stop the illegal power supply to mining farms. Although some countries, on the contrary, are following the path of legalizing cryptocurrency mining. On September 22, Iran will lift the ban on mining digital assets that was introduced in late spring.


Payment aggregators continue to move towards the further integration of crypto payments. PayPal has made it possible for UK customers to buy, store, and sell cryptocurrencies. UK PayPal users can transact with Bitcoin, Ethereum, Litecoin and Bitcoin Cash.

 

Conclusion

Market participants continue to avoid risk. The global increase in cases of COVID-19 is making the players nervous, which is expressed in increased volatility. Oil looks very weak and is likely to continue to decline. Gold and other safe-haven assets may receive additional growth factors, especially after the US Federal Reserve clarifies its position on monetary policy.

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