May Recap: USD Weakness, Gold, CAD & Crude Oil Strength

Welcome to our look back at the previous month and a look ahead to what we might expect to see throughout June and beyond.

The main market drivers in May were pretty much the same as April, including the continuing COVID vaccine programs, which are working better in some economies than others.  This has seen notable gains in instruments like WTI, Brent Crude, Stock Indices and EUR.

The US Executive Branch and Congress will be debating and negotiating a massive infrastructure plan into the next few weeks and months, which will affect the USD as we move forward.  We still see overall USD weakness 

Another major concern, which reared its head in April and will continue for months to come, is the dreadful situation with COVID infections in India.  This is not only a humanitarian tragedy, it may turn out to be an economic tragedy.

Crude Oil

Price action on both Brent Crude (UK Oil) and West Texas Intermediate (US Oil) has been climbing for many months now, based on higher demand optimism, OPEC production cuts, and diminishing stockpiles. 

Vaccine optimism in the US and better news from Europe on vaccines and potential recovering air travel led to demand optimism for the crude oil market.

Also, many economies are still trying to determine the best way forward on “passporting” of individuals who have been vaccinated and how they prove this.  Any positive news on this will have a major impact on the travel and leisure sectors and indicate a future demand for crude.

US Equities

There is a typical seasonal saying that investors and analysts use in that we should, “Sell in May and go away”.  This did not happen this year as the S&P 500 and the Dow Jones Industrial Average hit all-time highs in the beginning of May.  We have seen a pullback to the lower trend line on both and levels are creeping back up.

The NASDAQ actually hit all-time highs in April and retreated in May to the lower trend line.  Levels are slowly returning to previous highs.

With improving global economies, and the Biden US Infrastructure Plan, we see no reason why these increases will not continue.  The only headwind might be in the form of tax or interest rate increases but these should be months away.

European Equities

Most European Indices like the DAX, CAC40 and the STOXX50 are currently at all-time highs based on the better news on COVID cases, vaccines, and the potential for tourism in Europe this summer.

The IBEX35 is still well below its pre-COVID levels but is showing steady growth post-COVID. 

UK Equities 

The FTSE 100 has yet to recover to pre-COVID levels in the 7600’s, had recovered this month to the mid 7100’s and, like all other global stock indices, it is progressing higher.

Levels in May reached a key level which was support in 2019.

The good news for the UK economy is the very successful immunization plan which is now in effect and appears to be well ahead of other leading economies.  This has strengthened Pound Sterling.  Considering that most of the companies on the FTSE 100 earn their income from foreign offices and sources, any increase in GBP negatively affects the market cap of each company, and therefore the FTSE 100.

We see FTSE strength in the near future as the UK economy opens up, Brexit concerns are now fading, and the UK is now free to negotiate trade agreements around the world.  There is also optimism as the financial service sector in London settles down to life post-Brexit and post-COVID. 

CAD

One of the favourite correlations for traders is the inverse relation between USDCAD.  Basically, whenever the price of crude oil rises, so does the Canadian Dollar.

As well, the Canadian economy is improving faster than expected, and with increased demand for oil, new see continued CAD strength into June and beyond.

USD 

As May ends, we note USD weakness from two months ago until the end of the month, despite a rapidly improving economy.

Many analysts feel that the US Federal Reserve policies are falling behind those of many other economies’ Central Banks and they are not anticipating rate hikes or tapering for quite a while.  The Fed is quite clear in their approach that they want to see the COVID pandemic under control before making any dramatic decisions.

The end of May saw a huge travel boom during the Memorial Day long weekend which was the first “Mask Free” time since the beginning of the pandemic.  Time will tell if we see the results of COVID “Super-Spreaders” and how they might affect the economy and USD 

NZD 

The New Zealand Dollar gave us another fabulous trading opportunity in May (at least if you were paying attention to our Market Blast videos twice-weekly). 

The Reserve Bank of New Zealand made it clear that it will bring forward the date at which it will raise interest rates.  This strengthened the New Zealand Dollar temporarily and, as we like to trade counter-trend moves, price hit resistance in pairs like NZDCAD, formed a double top, and reversed to the downside.

However, we see this downturn as short-lived as the currency has been trending up since mi-March.

GBP 

Most of this year we have seen GBP strength based on the Brexit situation finally being resolved and great success with the UK COVID vaccine program.

The Johnson government successfully dealt with some distractions during May and the Pound is still looking strong especially against USD, JPY and AUD. 

Gold

XAUUSD has been on a bear run since August of last year and we see this continuing from both the fundamental and the technical aspects. 

Price action rose this month based on increasing US bond yields, continued Central Bank purchases, and a couple of geopolitical events.

US Bond yields have eased for now but analysts feel that they will pick up this year which should see the price of Gold increasing with the next level above in the $1950s.

That’s all for now.  Make sure you subscribe to the Valutrades blogs and videos and we will see you here at the end of June.