Welcome to our look back at the previous month and a look ahead to what we might expect to see throughout May and beyond.
The main market drivers in April were pretty much the same as March, with a shift toward 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.
USD Weakness and Bad COVID News from India
Europe looks like it is finally catching up on its vaccine deficiencies, and there is talk of boosting travel and tourism with vaccinated visitors, however, some economies are still in lockdown.
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.
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.
Price action on both Brent Crude (UK Oil) and West Texas Intermediate (US Oil) has climbed all month 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
The Brent crude spot price started the month at $62.80 per barrel and will finish the month near $66.50 off a high from $68.36.
The WTI spot price started the month at $59.45 per barrel and will finish the month near $63.40 off a high from $65.48.
The main driver of price in April, and moving into the next few months, will be COVID-19 vaccine results, lockdowns, OPEC production cuts, the situation in India, and the easing of travel bans which are restricting the use of automobiles and jet airplanes which, of course, require fuel. Higher demand equates to higher prices.
Prices increased for the first half of the month and a few days into the second half but prices fell based on the devastating news from India.
Price then ranged into a significant double bottom and then, in its 27 April meeting, OPEC+ agreed to continue with production cuts into May, which boosted price and broke resistance of the double bottom.
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.
April tends to be a good month for the stock market and this year has been no exception. Many analysts thought that the gains would be short-lived into the second half of the month, but these predictions did not come to fruition.
In fact, the NASDAQ, which was lagging behind the other indices like the Dow Jones Industrial Average and the S&P 500, has finally caught up and passed its February all-time highs.
Earnings have been positive for many US corporations which have spurred increased share prices and more investment in US equities. We see only positivity moving forward, with a very successful US vaccine program, economies slowly opening up into May and June, and the potential US infrastructure plan.
A minor downside may be on the horizon, however, as employees leave the “work-from-home” environment, there may be less demand from the associated technology and services.
Although France is currently in lockdown, the CAC40 has improved overall in April.
Most of Spain now has COVID under control, the vaccine program is moving forward, and it has shown in the IBEX35 which was in dire straights post-COVID and at the end of October 2020. The Spanish index has not recovered to its pre-COVID levels but optimism has clearly affected investors as this index has performed better than most.
The German DAX30 had reached its pre-COVID levels in January but its performance in April has had us using one word - “ranging”. We close the month at key support at 15160 and analysts are predicting that levels may not break out of the current range for weeks or months to come.
The FTSE 100 has yet to recover to pre-COVID levels in the 7000’s, had recovered this month to the mid 6900’s and, like all other global stock indices, it is progressing higher.
Pre-COVID support was around 7100 but, in those days, the level of GBP was much lower and, therefore supported higher levels on the FTSE.
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.
As April ends, we note USD weakness from the start of the month 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 New Zealand Dollar gave us a fabulous trading opportunity in April (at least if you were paying attention to our Market Blast videos twice-weekly).
At the end of March, the government injected billions into a fund to promote home building to curb out-of-control house prices.
As with many events in the global FX markets, the impact was dramatic, NZD crashed, and the recovery of the NZD was inevitable as buyers took advantage of the bargain.
Also, assuming further post-COVID recovery and better news on trade with China, we see continued NZD strength.
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.
Many market participants felt that GBP was overpriced and April may have proven them correct.
Looking into May and beyond, we need to keep an eye on key economic indicators for the economy and some pending turmoil for Boris Johnson related to extraneous items totally unrelated to the economy and the pandemic.
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.
We saw price try to retrace from resistance of the double bottom we spotted last month in our Market Blast videos, but US sanctions against Russia, increasing US bond yields, and continued Central Bank purchases drove price action back up to the upper trend line.
US Bond yields have eased for now and, without any geopolitical tensions to interfere, we see further Gold decline.
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 May.
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