It was a rough and rocky start to another busy week for financial markets.
The sentiment pendulum swung deep into risk-off territory on Monday amid concerns over the Covid-19 Delta outbreaks threatening the global economic recovery. As risk aversion engulfed global markets, investors scattered from riskier assets to safe-haven destinations. On a brighter note, OPEC+ finally struck a deal to raise production after Saudi Arabia and the United Emirates reached a compromise. In the United Kingdom, Monday was also ‘Freedom Day’, marking the end of coronavirus restrictions.
An air of caution lingered across markets on Tuesday as investors remained jittery over rising Covid cases. However, the mood started to improve as the session progressed with the S&P 500 recovering much of the previous day’s loss. On the earnings front, Netflix reported second-quarter earnings that missed expectations but the company’s revenue slightly beat estimates.
Our trade of the week was the euro which was on standby ahead of the crucial European Central Bank (ECB) meeting on Thursday. We took a deep dive into what to expect from the ECB meeting and how the EURUSD could react to the various outcomes.
Mid-week, markets continued to stabilise with the sentiment pendulum approaching risk-on territory. Interestingly, the dollar index (DXY) hit its bests level since the start of April despite the improving market mood while gold dipped below the psychological $1800 level.
All eyes were on the ECB meeting on Thursday which offered no major surprises. As widely expected, monetary policy was left unchanged but the forward guidance on interest rates was revised to reflect the new 2% inflation goal. While the euro depreciated against every single G10 currency following the meeting, the EURUSD was still unable to break below 1.1751.
The Purchasing Managers' Index (PMI) for the Eurozone, United Kingdom and the United States were under the spotlight on Friday. While PMIs from Europe beat expectations and remained in expansion, they cooled in the UK and US in July.
In the commodities arena, it was a choppy week for gold. Near the start of the week, the precious metal remained under the mercy of a stronger dollar and rebound in U.S Treasury yields. Prices lingered around the psychological $1800 level as gold drew strength from surging global coronavirus cases. Should prices linger around this level for too long, bears may steal back control with the next key level of interest found at $1760. If prices can push back above $1800, gold has the potential to retest $1825 which is just below the 200-day Simple Moving Average.
A barrage of blockbuster corporate earnings brightened the market mood and injected equity bulls with fresh inspiration near the end of the week. U.S stocks rallied on Friday, propelling the Dow Jones Industrial Average through the 35000 level for the first time. This feel-good sentiment also propelled the Nasdaq and S&P 500 higher with both ending the week at record highs.
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