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Gold and oil return to active growth



The dollar’s weakening since early April appears to be outside of the monthly or quarterly rebalancing range. US stock indices are rewriting historic highs, while emerging market currencies are growing at an accelerated pace. These are all clear signs of the recovery in demand for risky assets. Markets are paying more attention to the recovery of activity in North America and several countries in Europe, where relaxation of restrictions and a recovery in demand for raw materials and energy are planned. Although the third wave of coronavirus in the world is already comparable in new daily cases to the second, its main blow falls on India, Brazil and a number of other major emerging economies. However, this remains outside the focus of the markets, pushing commodities up. During the outgoing week, this demand was actively manifested in investor interest in oil and gold. WTI crude is trading at $ 63.77 at the beginning of trading in Europe. Its price has been running in the range of $ 57-62 since the second half of March and this week managed to break through its upper limit. The growth driver was the report on oil reserves in the US, which marked a decrease in the level compared to last week and to the values ​​exactly a year ago. This was further evidence of the return of the oil market to normal, causing a 4% jump in quotations and supporting buying now. The next milestones on the way of growth are seen in the $ 66-67 area, from where the price turned to correction in March. Brent, having broken out of the $ 60-65 range, is able to retest the resistance at $ 70 for the next few trading sessions. The weakening dollar sharply raises the chances that buyers won’t stop there. The March pullback allowed liquidity and recharge the bulls to storm into the $ 68-77 WTI and $ 70-85 Brent area. Gold also received support from buyers after an 8-month slide towards the support line. long-term trend and 38.2% retracement of the rally since 2018. The trend has weathered and oversold gold is enjoying buying on the downturn. It is also helped by a weak dollar and lower yields on long-term Treasuries. All of this increases the attractiveness of gold as a hedge against inflation. The latest growth momentum brought gold back above the 50-day average, pushing the price up $ 90 from the beginning of April to $ 1,762. At the same time, it has yet to prove long-term rally by passing the 200-day moving average test (now at $ 1,857). If we consider the pullback from August 2020 to April 2021 as a correction of the momentum of a two-year rally, then the next wave of long-term buying could lead the price above $ 2,600. ___________________ Alexander Kuptsikevich, Lead Analyst, FxPro

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