Rebound Stalls ahead of Jackson Hole

Fundamental analysis of Forex market

The week got off to a strong start on Monday but momentum is already waning, with European stocks a little flat and US futures only marginally higher.

Investors were keen to buy dips at the start of the week and capitalise on last weeks sell-off, as China successfully contained the virus outbreak and the FDA gave full approval to the Pfizer-BioNTech vaccine. Chinese growth fears had weighed on risk appetite in recent weeks but it seems the draconian approach is paying off once more.

This provided some relief yesterday, particularly in commodity markets which soared on the back of the news. While a very positive development, other countries are taking a much less strict approach and cases are surging which will likely weigh on growth into the end of the year.

Vaccine efforts should ensure full lockdowns are a thing of the past for many of these countries but the recovery will no doubt slow, regardless, as some restrictions are imposed and behaviours change.

It will be interesting to see whether the Pfizer-BioNTech vaccine getting full FDA approval will significantly boost vaccine rates, with some that were previously sceptical perhaps feeling more comfortable accepting it. It’s become such a polarized issue in many countries now, it will still likely not be enough to convince some people but any gains will aid the fight against the virus.

As far as today is concerned, it’s likely to remain quiet, with the economic calendar looking very thin and lacking any major releases.

Stock markets may get another helping hand from Jerome Powell this week when he appears at the annual Jackson Hole event. Until recently, this looked the perfect platform to lay the groundwork for a September taper announcement but some concerning economic releases and a surge in delta cases in the US may see the Fed adopt a more cautious stance for now.

Any suggestion from Powell that a taper may not happen this year could give these markets another boost, with it having until recently looked almost guaranteed. The more cautious approach is likely to be adopted by many central banks in the coming months.

Oil buoyed by China virus containment

Oil prices are making gains once more after a fantastic start to the week. WTI is 1.5% higher after jumping around 6% on Monday as China reported no new Covid cases. Prices have been crushed in recent weeks as a result of the uncertain growth outlook for the worlds largest crude importer so Monday’s news was naturally very bullish.

WTI remains around 11% off its July highs so there’s still plenty of ground to make up. Of course, the global outlook has probably become more uncertain in that time as a result of numerous delta surges, including in the US. So we may not see it fully recoup those losses in the near term.

But there is still room to add to the promising start to the week. It’s seeing some resistance around $67 today and we may see similar around $68. The big test will come around $70, a break of which could be very bullish.

Powell holds the key to gold fortunes

Gold’s resurgence has stalled on Tuesday after it was caught up in the commodity surge at the start of the week. A softer dollar gave commodities a helping hand as risk appetite improved significantly. Gold has found support around $1,800 this morning which is encouraging although bigger challenges lie ahead.

While it’s arguably come as a surprise to see gold recapture $1,800, the big test will be $1,833 where it failed on a few occasions in July and early August. A move above this level would be very bullish and may suggest taper expectations have been pared back. Powell may offer more insight later in the week and any suggestion that it’s less likely this year, particularly in September, could be the catalyst for a breakout.

If gold does break through its recent ceiling, further resistance could lie around $1,860, with the summer highs above $1,900 then getting a lot of attention.

Bitcoin struggles to gather momentum after breakout

Bitcoin is back below $50,000, shortly after the breakout got crypto bulls very excited. Interestingly, the breakout failed to generate renewed momentum which may suggest the rally is running on fumes. That’s no bad thing in the longer run, with there being a lot of optimism out there about cryptos. But it may again suggest a correction is coming.

The key resistance level appears to be $51,000 – the 61.8% retracement of the June highs to August lows. A move above here could see momentum shift back in bitcoins favour, at which point talk of new highs will be inevitable. As will the hopeful predictions of how high it can reach this time.