Gold
Thursday’s New York trading session saw gold finally break out of its weekly consolidation area and make a move to the upside as bulls took control of the market. Surging oil prices continue to increase fears over rising inflation, which has been benefitting gold. Other factors influencing the price movements include risk trends, FED monetary policies, as well as updates to the war in Ukraine, keep risk appetite low.
In terms of technical analysis, the price at the time this article was written is $1 956.50 with bulls eyeing the $1 980-00 level to complete a head and shoulder pattern where sellers could potentially enter the market and test the upward momentum. However, this upward momentum is moving in a corrective way in the form of a bearish continuation pattern, which gives us insight into the fact that this could be a pullback. If this downside scenario plays out, we could see bears flex their muscles down to the $1 930 level and a break below this level could make way for the price to retest the monthly low last seen on the 16th of March around the $1 900-00 level.
Oil
As European Union leaders meet to discuss the possibilities of banning Russian Oil in the block, investors watched on with keen interest on the outcome of this summit held on Thursday. However, as news trickled out that policymakers had decided to delay the ban, oil prices slipped around the $116 mark. In terms of sheer volume, Russia services 45% of EU gas imports, 25% of oil imports, and 45% of coal, which indicates their extreme dependency.
This hesitation to ban Russian oil is largely driven by the fact that Europe as a whole will face escalation in unemployment and a serious drop in manufacturing activities, which will affect the European economy negatively. An immediate embargo on Russian oil might be a good idea in principle to hurt the Russian economy but not a wise decision for the European economy.
In terms of technical analysis, we see that oil approached this $116 level sluggishly in a corrective pattern, forming an ascending channel, and coupled with the fundamentals, we could see sellers take control and drive the price down to test the $100 level and a break below that could open the way for a retest of the low of this range last seen on the 15th of March around the $93 level.
U.S Markets
Market sentiment remained dampened in early trading on Friday morning as geopolitical headlines dominate the buyers of major stocks amid the absence of major data and events on the economic calendar. The Dow Jones Industrial Average rose 1% in Thursday’s stock market trading while The S&P 500 index popped 1.4%, with Nvidia stock and other chipmakers among the best performers. The Nasdaq composite gained roughly 1.9% and U.S 10-year Treasury yields retreated from the previous daily close of around 2.37%. Overall, The stock market rally continues to show strong action, bouncing back from Wednesday’s lows. There are buying opportunities present at these levels, but many stocks have already extended from these discounted lows.
European Markets
European indices have seen a strong rebound this week off the monthly lows as the “risk-on” sentiment fueled demand. In the wake of a 13% decline in the UK 100 index from the highs that we last saw in February, a rebound off of the 6 800 level allowed bulls to take control and drive prices back above the 7 000 level before running into a wall of resistance at the key psychological level of 7 500, which are levels last tested before the invasion of Ukraine. In stark contrast, however, the Stoxx Europe 600 index finished down 0.21% to 453.07 while the French CAC 40 index fell 0.39% to 6,555.77, and the German DAX remained flat at 14,273.79.
Bitcoin
The outlook for the near future is set to be decided as prices reach the upper range of a consolidation area on the back of a two-week rally. As the Thursday trading session drew to a close we saw Bitcoin price tag the upper trend line of the ascending triangle that has been forming at $44 000. This technical pattern was discussed in last week’s newsletter and is composed of trend lines drawn across equal highs and higher lows.
In terms of technical analysis, a break above the high of this consolidation area could set the stage for bulls to drive the price to $53 855, but buyers need to overcome multiple hurdles to reach this target destination. If the price closes the week above $52 000 this will constitute a higher high relative to the highs formed in December 2021 and could potentially bring about the start of an uptrend. In such a case, market participants can expect Bitcoin to head for the $60 000 psychological barrier, bringing the total gain to 36% from the current level around the $44 000 mark.
The optimal play
The appeal for The U.S Dollar’s safe-haven status increased this week as the Federal Open Market Committee prepared investors for the subsequent interest rate hikes that are expected in May and minutes from the NATO meeting in Brussels came out. In essence, U.S President Joe Biden discussed further sanctions on Russia and formulated a strategy to strengthen NATO with its NATO counterparts by establishing four new battle groups in Slovakia, Romania, Bulgaria, and Hungary, which may strengthen their collective defence force, particularly on the Eastern flank. This has further escalated tensions, which is likely to cause a minor delay in the ceasefire between Russia and Ukraine. This delay has massive implications for the disruptions we’ve seen in the global economy and the knock-on effect on the Dollar index saw it rally in the New York trading session on Thursday to the 99.00 key resistance level.
In terms of technical analysis, the index is forming a consolidation pattern on the back of a clear impulsive move. An Upper trendline forming from a high reached on the 7th of March at 99.41 can be connected to a lower trendline forming from a February low at 95.77, which may continue to react as strong support for potential buyers to come in at a discounted level with the aim of rallying past the initial high set at the 99.41 level.
This is in line with the above fundamental analysis that is forecasting a stronger Dollar against a basket of global currencies. Conversely, a break below the 97.70 level will be a trigger for sellers to take control and sell into a bear market with the target being the 95.77 low.
As always, Aluma advises caution when speculating on the strength of the currency markets as the potential to lose your initial investment exists, but if you have Dollar exposure through Aluma’s Listed Global Note then the capital protection provided through our partnership with one of the big four banks in South Africa will provide a good safety net for any downside scenario potentially occurring.
