XAU/USD Breaks out of recent range

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Traditionally inversely correlated to stocks, Gold has been stuck in a similar tug of war between Coronavirus fears and central bank support. Weighed down by recent fiscal stimulus, bullish stock markets and a US Dollar Index at 5-month highs, the safe-haven XAUUSD slipped to USD1,580 on Monday but has since rallied to month-to-date highs following a profit warning from Apple. The yellow metal now trades marginally short of USD1,612, March 2013’s resistance and May 2011’s support. A pivotal level for the sentiment of technical investors.

Statistics reflect the Coronavirus epidemic is continuing to escalate. Exceeding that of fellow Coronavirus SARS, the “Wuhan Virus” death count has now surpassed two thousand. Further to a rising infection rate, the geographical damage is growing increasingly more widespread with over seventy-five thousand people infected.

Whilst sentiment has remained fragile throughout, the economic impact is now truly being felt. Tech giants Apple have issued a profit warning, specifically citing slowing production and demand in China. Publicly pessimistic about achieving quarterly forecasts, the household name is the first significant sign of materialising economic damage from the virus. 

Further key indications of the specific economic damage will likely emerge in data released over the coming months. Particularly as key exporters to China, data out of New Zealand and Australia will be heavily scrutinized. Factory closures and transport limitations have undoubtedly impacted the supply chain in local regions.

Whilst there is a strong element of fear surrounding the economic impact of the Coronavirus, there are also multiple reasons for stock market bulls to be fundamentally optimistic. Particularly strong employment data out of the US and the increasing probability of another dovish Trump tenure will continue to fuel market bulls.

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Proven again this week by additional medium-term funding and a decrease in the Chinese commercial interest rate, the willingness of the PBOC to prop up their domestic market is evident and provides a safety net under fearful investors.

Technical Momentum to the Upside for Oils

Last week saw Brent and WTI rally 5.2 per cent and 3.4 per cent respectively, the largest weekly gain since September.

Despite a pullback from recent highs, investors will be eager to determine whether recent demand spells the end of a torrid 5-week downtrend. Supported by technical momentum and the OPEC toying with the idea of emergency production cuts, keep an eye on continued demand for the watched commodity. Following a breakout from the yearly downward channel, a break above last week’s USD52.63 high could spell a rotation back towards USD60.00 for WTI.

EURUSD Struggles
Most notably in Forex markets, EURUSD has slipped to 1.0784, the lowest level since April 2017. Brexit deal uncertainty and weak ZEW sentiment data out of Germany has ensured the common currency remains in a firm downtrend. The next level of technical support is 1.0775, a closure of April 2017’s Macron gap. A key area to monitor for short covering following recent price action.

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