Risk sentiment improves almost overnight, markets shift course - Market Overview

Risk sentiment improves almost overnight, markets shift course - Market Overview

The risk sentiment changed radically in the past couple of days compared to last week, when risk aversion was the predominant element.

According to the latest news reports, China managed to regain control over the epidemic outbreak. This led to a reversal of many market movements which had occurred during the past week, such as the growing interest in buying safe currencies like the US Dollar, the Japanese yen, or US treasury bonds. However, we cannot say for sure if this is just a corrective movement of these.

Changes in risk sentiment have been particularly strong in the commodities markets. Fears regarding a fall in demand for crude from China due to mobility restrictions vanished for the moment. Oil experienced two days of solid increases above the previous support zone located at 66.43.

The weekly crude oil stock data published yesterday by the American Petroleum Institute showed an inventory drop lower than forecast: -1.6M vs 2.3M expected. This result could indicate that demand is less strong than expected (less drop in inventories). However, it remains to be confirmed when the upcoming data published by the International Energy Agency comes out.

Copper also experienced a substantial rise. From a technical analysis point of view, the price surge can be considered a correction or pull-back towards the neckline broken down last week. The raw material would need to advance above current levels to consider the activation of the trend reversal pattern failed.

On the other hand, the US Dollar, which had strengthened due to Fed’s announcement regarding the reduction of bond purchases, weakened in a movement that for the moment can be considered as corrective.

The EUR/USD pair traded slightly above the resistance zone located around 1.1750, which is also the 0.618 Fibonacci retracement of the last bearish leg.

Sources: Bloomberg, reuters.com.

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