Global Stocks, Crude Oil, and Gold Rally on Stimulus Hopes

Global stocks surged today on optimism that the US government will offer stimulus to companies and households. In the US, futures tied to the Dow rose by more than 5% prompting a “limit up”, which stopped further trades. S&P500 and Nasdaq futures also rose by 5%. This happened after a report by Washington Post said that the White House and Democrats were edging closer to an unprecedented deal. The deal will create a $850 billion fund that affected companies can borrow from. It will also include direct payments of $1,200 to many adults and $500 to children. The main hindrance to a deal is that many Democrats have opposed funding for companies that does not come with oversight.

The US dollar weakened today as traders reacted to news from the Federal Reserve. In an unprecedented statement, the Fed said that it would spend trillions of dollars to acquire financial assets like mortgage-backed securities, government bonds, and corporate bonds. This means that the Fed will increase its balance sheet by a bigger rate than the $4 trillion that it spent in the past financial crisis. The implication is that we may see a flight from USD as traders seek out other assets like gold and Bitcoin. 

Today, we received flash PMI data from Markit. The numbers showed that manufacturing activity rose in Australia as manufacturers filled the gap caused by the Chinese lockdown. The PMI rose from 49.8 to 50.1. In Europe, manufacturing activity declined by a smaller margin than was widely expected. In the EU, manufacturing PMI declined from 49.2 to 44.8. This was better than the expected decline of 39.0. In the UK, the manufacturing PMI declined from 51.7 to 48.0 while in Germany, the manufacturing PMI declined from 48.0 to 45.7. However, the services PMI disappointed. In the EU, services PMI declined to a record low of 28.4, which was lower than the expected 39.0. Later on, we will receive data from the US.

EUR/USD

The EUR/USD pair moved above the important resistance level of 1.0831 on the hourly chart. This is important because the pair has struggled to move past this level four times in the past five days. Additionally, the pair is in an upward trend, which is evidenced by the rising RSI, ADX, and the double EMA indicators. This means that the pair may try to test the next support at 1.0957, which is the 38.2% Fibonacci Retracement level.

GBP/USD

The GBP/USD pair rose to an intraday high of 1.1773 because of dollar weakness. On the hourly chart, we see that the pair is in a bullish trend, which is also evidenced by the double EMA crossover, the rising RSI, and the surging momentum indicator. Therefore, in the near term, the pair could attempt to retest Friday’s high of 1.1932. On the flipside, the pair may reverse and attempt to move below its 30-year low of 1.1410.

XAU/USD

The XAU/USD rallied as traders moved to gold following yesterday’s action by the Fed. The pair reached a high of 1610, which is the highest level since March 13. Looking at the hourly chart, we see that the pair has been on an upward trend from Friday last week when it bottomed at around 1,463.20. This price is slightly below the 61.8% Fibonacci Retracement level while the RSI is at the overbought level of 78. As such, the pair could test this Fibonacci level at 1,612 and make a short-term pullback to retest the 50% Fibonacci level of 1,583.