TRADING THE NEW NORMAL
BY ANDREW LEONG
Since the COVID-19 outbreak in late January, which saw an exponential increase in the number of cases worldwide, Gold prices have been on a firm uptrend supported by risk aversion. On top of that, the fiscal stimulus measures adopted by central banks further buoyed demand for the precious metal, as it is often seen as a hedge against inflation and currency debasement.
Despite its safe-haven asset status, Gold prices held its ground even when the markets’ risk appetite recovered. This is reflected in the recent stock market rally that started in late March. The reason for this can be likely attributed to the fact that it is a Dollar-denominated asset, and a weakening Dollar in this riskon environment added to the bullish drive for the precious metal. Meanwhile, given the geopolitical uncertainty that we have been witnessing this year, with tensions between US and China, not forgetting Europe (as European officials believe that the EU should be more aggressive in its defence through rules enforcement and retaliatory tariffs), Gold would stand to gain from such a crisis.
In line with our bullish fundamental outlook, a peek into technicals showed that Gold prices are holding firmly above its ascending trend line. We are likely to see further upside in prices as supported by the current macroeconomic landscape making it an appealing instrument for investors.
We Are Trading This Month: GBPAUD Technically Speaking
GBPAUD is on a long-term downtrend with no support references in recent times. With price holding below a long-term moving average, further bearish momentum could carry price lower towards first support at 1.75608. First support is a key level as it is both July 2019 swing low and also a 100 per cent Fibonacci extension level. As long as the price is holding below 1st resistance at 1.84518, we maintain a bearish bias.
Fundamentally Speaking
The UK government is running out of time as they prepare to launch a campaign urging businesses to prepare for the end of the Brexit transition period on 31 December 2020. A survey shows that only a quarter of UK companies are ready for this transition, which couldn’t come at a worse time against the backdrop of COVID-19 that experts are saying would last for more than a year. Further, a survey by Bloomberg News shows that the UK economy is on route to contracting by another 19 per cent going forward. All these factors put pressure on the GBP.
In stark contrast, the AUD has been strengthening over the last weeks. The behavior of the AUD seems to largely ignore the second wave of COVID-19 that has been breaking out in major economies. It also appears to behave similarly to market sentiment surrounding an expected reopening of economies and a possible vaccine for COVID-19 being discovered soon.
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