Meanwhile, demand in safe haven assets is firming with increased inflows in US treasuries, Swiss franc and gold.
Gold cleared the $1800 resistance and rallied to $1820 per oz on stops. Whether the gold’s strengthening positive momentum is due to the slippery risk markets or rising speculation that the advance could stretch to $2000 per oz, the feeling that gold might have been bought too fast in a too short period of time should encourage a pause in the short term. The higher the price of an ounce, the higher the risk of a sharp downside correction.
In the FX, the US dollar index hit a four-week low as capital continued flowing in riskier assets.
The euro advanced to 1.1370 against the greenback ahead of today’s Eurogroup meeting. Investors are craving for an agreement on the 750-billion-euro rescue package, which would restore confidence in the Eurozone’s integrity and the euro. But the lack of progress or discouraging news could abate the optimism in euro and compromise the single currency’s recent advance against the dollar.
Sterling hit a three-week high on the back of a larger-than-expected mini budget to stimulate the British economy. The UK’s latest stimulus plans near 1% of its GDP versus 0.5% expected due to higher VAT cut for hospitality and entertainment. Although the latest announcement is significantly less than the measures the British government is about to roll out – nearing 7% of the UK GDP, news are positive for recovery and sterling. Combined with a broadly softer US dollar, Cable could extend gains toward its 200-day moving average, 1.2685, but should encounter solid resistance at this level as mid-term sterling bears will likely take the opportunity to strengthen their short positions on lingering Brexit headaches.
Finally, WTI crude remained resilient to the surprise 5.7-million-barrel rise in US inventories last week. The short-term direction is unclear, as investors hesitate whether it is a good idea to carry the rally further while the combination of lower demand prospects and higher supply tilts the balance to the opposite direction. Inability to extend gains above the $40 mark hints that a downside correction could be around the corner.
