Analysts at Rabobank see strong support for a global coordinated cut in crude oil production to occur, as in effect, it is already happening. They point out any supply cut would likely be dependent on non-OPEC participation.

Key Quotes: 

“We see scope for higher oil prices in the near-term should a global production deal come to fruition. We noted last week that we saw oil prices following two very different trajectories depending on how the price war plays out. This week an abrupt end to the price war is looking more likely and the market will soon find out as the Saudis have called for an emergency meeting between global producers to be held virtually early next week.”

“It is also worth noting that the speculative interest is largely “short” at the moment including trend followers, momentum traders, and “carry” strategies. These “shorts’ are now at risk of giving back a large portion of recent gains should a global supply cut be put in place but much will depend on how quickly the virus related demand losses begin to recover in the weeks and months ahead.”
 

The US’ economy is expected to expand by 1.5% in the first quarter of 2020 and seen contracting by 0.4% in the second quarter, the Federal Reserve Bank of New York’s latest Nowcasting Report showed on Friday. 

“News from this week’s releases, which included the first hard data for March, decreased the nowcast for 2020:Q1 by 0.2 percentage point and decreased the nowcast for 2020:Q2 by 0.7 percentage point,” the NY Fed said in its press release. “Negative surprises from labor data drove most of the decrease.”

Risk aversion

Major equity indexes in the US continue to push lower on Friday. As of writing, both the Dow Jones Industrial Average and the S&P 500 were down 2.4% on the day while the Nasdaq Composite was erasing 2.1%.

  • US Dollar Index stays above 100.50 in American session.
  • Wall Street’s main indexes suffer heavy losses on Friday.
  • US data showed NFP posted largest monthly decline in 11 years.

After climbing to 108.50 during the European trading hours, the USD/JPY pair struggled to make a decisive move in either direction and continues to move sideways near that level as risk aversion helps JPY stay resilient against the USD. As of writing, the pair was up 0.55% on the day at 108.49. On a weekly basis, the pair is up 80 pips.

Mixed reaction to key US data

The US Bureau of Labor Statistics on Friday reported that Nonfarm Payrolls in March declined by 701,000 and noted that the data was not reflecting the full impact of the coronavirus outbreak on jobs as it was collected before shutdowns. Moreover, the Unemployment Rate rose to 4.4% from 3.5% and the Labor Force Participation Rate dropped to 62.7% from 63.4%. 

Commenting on the NFP report, “the pandemic already had a worse impact on the labour market than anyone anticipated. The dislocations are expected to peak in May, assuming the pandemic is under control by then,” said Sal Guatieri from BMO Capital Markets.

However, the ISM’s Non-Manufacturing PMI surprisingly stayed above 50 in March and revealed that the economic activity in the service sector continued to expand.

Markets largely ignored these figures and the US Dollar Index didn’t have a difficult time staying in the upper half of its weekly range above the 100.50 mark.

However, Wall Street’s main indexes remained on the back foot and now look to end the session around 2% lower to reflect the risk-off atmosphere, which helps the JPY limits its losses against its rivals.

Technical levels to watch for

 

  • EUR/JPY bearish momentum remains intact near 2020 lows.
  • The level to beat for bears is the 116.90 support.
 

EUR/JPY daily chart

 
EUR/JPY is consolidating the recent slide near the 2020 lows as the spot is trading below the main daily SMAs suggesting an overall negative momentum for the currency cross.
 

EUR/JPY four-hour chart

 
Euro/Yen broke below 117.50, which became resistance as the quote is trading below its main SMAs on the four-hour time frame suggesting a bearish bias in the medium term. Bears remain firmly in control as a successful break below 116.90 should introduce scope to further declines towards the 116.10 and 115.50 levels while resistance can emerge near 117.50, 118.00 and 118.75 levels on the way up. 
  

Additional key levels

 

According to the latest headlines crossing Reuters, Russia’s Energy Minister Alexander Novak told Russian President Putin it was necessary to cut the oil production for everybody including Saudi Arabia and the United States.

“Output should be cut for the next few months, should be gradually recovered thereafter,” Novak further told Putin.

Meanwhile, Putin reiterated that the low oil demand due to the coronavirus outbreak and the withdrawal of Saudi Arabia from OPEC+ were are the reasons behind the decline in oil prices. “Saudi Arabia plans to get rid of shale oil producers,” Russian President added.

Market reaction

The barrel of West Texas Intermediate largely ignored these remarks and was last seen trading near $27, where it was up 9% on a daily basis.

  • Gold trades just 0.19% higher on Friday despite poor data from the US.
  • The price has stalled ahead of a key trendline shown on the chart below.

Fundamental backdrop

The jobs market in the US is in a state of chaos at the moment with another record print for weekly jobless claims and a record matching 701K non-farm payroll number this afternoon. It has to be said the data was for March but missed out the last two weeks of initial jobless claims due to the cut off period. This means that the true numbers may be reflected in next months reading. 

There is still a massive amount of central bank and government stimulus around. Germany are increasing support for small to medium-size business but are yet to finalise arrangements with some reports suggesting the figure could be as high as EUR 500 billion. 

In terms of COVID-19 news, the rate of change in Italy and Spain seems to be slowing as the world passes the 1million mark. The US has surpassed 200 thousand cases to become the worlds worst affected nation. What is interesting is the fact that and Larry Kudlow (Director of the United States National Economic Council) said that the US would not reopen until the US are satisfied on the health side. 

Technical picture (4-hour and weekly chart)

The chart below is showing that the gold price is attempting to break the red trendline on the chart. this level seems significant but not as significant as the USD 1644.54 per ounce wave high marked by the blue line. A break of these two levels will tell us lots about the macro environment and how badly investors are rushing for safe-haven assets. There are many plus points for the precious metal as it continues to trade above the moving averages on the 4-hour, daily and weekly charts. The RSI is also above the 50 mid-line on all of these timeframes too. 

For next week the blue and the black support and resistance zones will be key. In these times of economic uncertainty, the blue level at USD 1644.54 is the more important one. If this breaks then we could look forward to the test of the USD 1700 zone. 

Gold breaking trendline

Weekly chart

The weekly chart illustrates the highs and consolidation zone we are currently in. The red line is the next key area that could be tested close to USD 1800. Under that, USD 1533.00 is the support zone but the 4-hour chart shows USD 1500 has already been rejected. These are much longer term level but just need to be looked at from time to time for reference purposes.

Gold weekly test of highs

“We have witnessed the world economy coming to a standstill, way worse than the global financial crisis,” International Monetary Fund’s (IMF) Managing Director Kristalina Georgieva said on Friday. “The IMF imf focused on making sure there is a strong response to the health crisis, as well as strengthening the economy.”

Additional takeaways

“Nearly $90 billion in investments have flowed out of emerging markets.”

“Determined to use as much of $1 trillion war chest as needed to respond to the pandemic.”

“Highest risk we see is a wave of bankruptcies and layoffs that would make economic recovery harder.”

  • EUR/USD is easing down from last week’s highs.
  • Bears are pressuring the 1.0920 support level. 
 

EUR/USD daily chart 

 
EUR/USD is pulling back down from last week’s highs as the spot is trading below the 1.1000 figure and the main DMA (daily simple moving average) while DXY is picking up steam.
 

EUR/USD four-hour chart

 
EUR/USD is sliding down while challenging 1.0920 and the 50 SMA on the four-hour chart. Bears would need a clear break below the above-mentioned level to yield further declines towards the 1.0882 and 1.0836 price levels, according to the Technical Confluences Indicator. On the flip side, resistance can emerge near the 1.0984, 1.1007 and 1.1030 levels. 
 
 
Resistance: 1.0984, 1.1007, 1.1030, 
Support: 1.0920, 1.0882, 1.0836, 
 
 

Additional key levels

 

  • Gold is back in favour but in the short term, the price has dipped below USD 1600 per ounce.
  • The market is potentially gearing up for another move higher after USD 1586.46 was rejected to the downside.

Macro backdrop

Gold has been pulling back up since the recent low on March 16th. It’s amazing to think that in these uncertain times the price fell to hit a low to USD 1451.32. It was said a rush for cash was the reason for the drop to meet margin calls and redemptions. Regardless of the reason, it provided a great opportunity to get long of the safe-haven asset. Now many gold bugs are projecting the price of gold to hit the 2000 mark as the uncertainty continues.

Gold 4-hour chart

Looking at the technicals now, It seems the price is setting up for a 5th wave up. This means the rejection if $1640 was the top of wave 3 and USD 1568.46 is the potential start of the wave 5 up. If this is the case then the extensions higher could get as high as USD 1690.00. There are times Elliott Wave patterns fail and in this case, a break back below the previous wave low support of USD 1568.46 would be that trigger. 

The moving averages are also a good sign. The price has crossed the 55 EMA to the upside but is just about to meet the 200 SMA on the 4hr. In contrast, on the daily chart, the price is trading above both of them. The daily chart MA’s hold more significance so I would use them as the signal. So, in this case, it’s bullish. 

The RSI is throwing up a great signal. When the market is making higher lows but the RSI moves into oversold areas its called a failure swing. This is a bullish signal as it means the price has more room to move higher. The key is a break of the 50 mid-line as it can be confirmation of a move up.

In terms of support and resistance zones, the main thing to look out for is the break of the black trend line. If the trendline breaks to the upside then both blue resistance zones become the obvious targets.

Overall there is more bullish technical signals than bearish ones. This would be confirmed by the fundamentals if the US economy has to be closed longer than previously thought. The excess stimulus being pumped in by the worlds central banks is also bullish for gold but the only issue is the rush in demand for the US dollar. Cash is king for now but if it becomes meaningless due to over flooding of liquidity the yellow metal will reign supreme. 

Gold Price Analysis