Market Analyst at FXTM
The
Dollar is weaker against all G10 and Asian currencies ahead of today’s Fed rate
decision and the US Q1 GDP announcement. The Dollar index (DXY) has been on a
downward trend since Friday, shedding about 0.7 percent so far this week to now
trade around 99.70. The softer Dollar is aiding Oil’s rebound, while enabling
Gold to keep its head above the $1700 psychological level which is on course
for an 8.5 percent advance this month.
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The
Fed is unlikely to make any major policy moves today, having already pledged
trillions in emergency lending measures, while having an open-ended commitment
to purchase assets under its QE programme. The US Q1 GDP print is widely
expected to officially herald the end of the US economy’s record expansion,
even as the estimated four percent contraction has been mostly priced into the markets
already. Although the backward-looking data is unlikely to have a major impact
on markets, it does form the base for the Q2 print, which is widely forecast to
plunge into negative double-digit territory.
Chair
Powell has a fine line to tread as it remains to be seen whether he can justify
any show of defiant optimism about the US economy’s recovery prospects in the
face of such dismal data. Markets will be primarily focused on any guidance
that he may offer during his press conference. If the Fed does convey its
utmost commitment to supporting the US economy and financial markets by
remaining accommodative for a long time, that could power risk assets higher.
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Oil rebounds, but
will it hold?
WTI
futures bounced off the $10 support line to trade above $13, as Oil prices
endured a tumultuous ride in the markets. Front-end contracts in Oil are being
buffeted by fears of another foray into negative territory due to storage
limits, which has prompted investors to ditch their June contracts en masse.
Still,
the prospects of more major economies re-emerging from lockdown measures may
offer some solace to battered Oil prices, even if the reopening process will
surely be a gradual one. More importantly, these economies must remain open in
order to put Oil on a firmer footing. A second wave of coronavirus cases that
prompts another round of lockdowns in major economies would only spell another
disastrous period for Oil prices.
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Overall,
this year’s global recession is set to cap the upside for Oil, while its immediate
priority is to stabilise and find the bottom. Such ambitions would be aided by
further signs of a slower build in inventories or waning incoming supply, along
with more concrete evidence that Covid-19 is past its peak.
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