Fibogroup Market Analysis 2020

[fibogroup.com]

ECB extends Covid-19 emergency stimulus

Just a few months after taking a series of emergency measures, the ECB said it would increase bond purchases by 600 billion euros to 1.35 trillion euros and that purchases would last until the end of June 2021, which is six months longer than originally planned.
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The last decision was made after the data revealed the severity of the consequences of the coronavirus crisis in Europe. The unemployment rate in the eurozone rose to 7.3% in April from 7.1% in March, as restrictions on blocking affected jobs.

The operational management of liquidity by the ECB gives hope to investors who rely on the restoration of the European economy along with the currency of the region. Forecast for #EURUSD - growth to 1.20 by September 2020.
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[fibogroup.com]

EUR/USD: The most powerful rally in 10 years

After the ECB expanded its emergency bond buying program on Thursday, the European single currency continued its nine-day growth (this is the longest series of positive sessions since 2011). EUR/USD reached a three-month high of $1.1362. Thus, from May 25, EUR strengthened against USD by 4.5%.
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Currently, the Euro rally, caused by the ECB, is running out and looks overbought against the US dollar. The upward momentum may decline in the next sessions, when the pair approaches its maximum level for the year, which is $1.1495.
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[fibogroup.com]

Economic calendar for the week

The Federal Reserve will hold a meeting amid gradual exit from the quarantine in the states. During the press conference chairman Jerome Powell will justify the decisions made and share his thoughts on the economy.
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Weekly calendar:
06/08/2020, Monday
- Speech by ECB President Christine Lagarde in the European Parliament;
- Semi-annual report on the prospects for the global economy from the World Bank.
06/09/2020, Tuesday
- Eurozone GDP for the 1st quarter (updated data).
06/10/2020, Wednesday
- Consumer Price Index (CPI) for May;
- Fed rate; Jerome Powell press conference;
- US crude oil reserves.
06/11/2020, Thursday
- Producer Price Index (PPI) for May.
06/12/2020, Friday
- Independence Day;
- UK GDP.
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[fibogroup.com]

Energy war for the future

Saudi Arabia raised oil prices after a meeting of OPEC+ ministers.
According to the Saudi Aramco export price list in July, the increase for Asian markets averaged $5.60 - $7.30\b.
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- This means that in negotiating an extension of the reduction in the framework of the OPEC+ deal, the Saudis continued furious dumping in the Asian market, moderately in the European market, and keeping adequate prices in the US market to not be subject to duties.
— This means that the oil kingdom has led and currently leads a double game. Therefore, Riyadh delayed the announcement of its prices each time before the meeting of the OPEC+ committee.
—- This means that Asia is the main battleground for markets.
—— And in the end, an increase in export prices indicates at least two more months of the upward trend of black gold.
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[fibogroup.com]

Research: Gold optimism towards the end of summer

- Gold ETFs have demonstrated the largest quarterly inflows in four years amid global uncertainty and financial market volatility. Reserves of these products reached a record level of 3,185 tons by the end of the first quarter. It was the influx of investments that helped raise the price of gold in US dollars to an eight-year high (global demand for gold reached 55 billion US dollars - the highest figure since the second quarter of 2013). The price also reached new record highs in Indian rupees and Turkish lira, in particular.

- The pandemic has reduced jewelry demand as governments around the world have introduced blocking measures. Demand fell to its lowest level in history, driven by a 65% decline in China, the largest consumer of jewelry and the first outbreak market.

- Central banks continued to accumulate gold, although we expect net purchases to slow down sharply. Amid increased volatility and uncertainty, world gold reserves rose 145 tons in the first quarter.

- The total supply in the first quarter fell by 4% due to the coronavirus (blocking the work of gold mines, shifts of workers were moved to facilities with significant interruptions).

Work was stopped in many projects in an attempt to stop the spread of the virus. By the end of the first quarter, processing of raw materials slipped to almost zero when consumers were limited in their homes.

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Given the desire of the head of the American state to maintain exports, coupled with a weak exchange rate of the national currency and the adopted package of measures to support the national economy in the amount of $3 trillion: we forecast cyclical growth by April 2022 to $2200 - 2500 oz. This will be the main support factor for gold mining companies in the future 1-2 years.

The best time to buy will be the end of summer: against the backdrop of economic recovery in the summer, the demand for protective assets will decline. I suppose that a local decrease in quotations by 4-7% ($1600 - 1650 per ounce) from the current $1720 oz will begin. Decline in jewelry demand until August-September; re-preservation and output of gold mines at full capacity.

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[fibogroup.com]

Eurozone GDP

The economy of the Eurozone in the 1st quarter shrank by 3.6% (expected: -3.8%); in relation to the 1st quarter of last year, the decline in GDP amounted to 3.1%. (expected: -3.2% yy).
This is the third assessment and compared to the second (-3.2% yy and -3.8% qq) the numbers were slightly improved.

We remind you that according to the latest forecasts from the two leading financial institutions, growth is not expected in 2020:

#IMF Eurozone GDP this year will decline by 7.5% and grow by 4.7% next year.

#World Bank, in its Global Outlook published yesterday, expects the Eurozone economy to fail by 9.1% this year and grow by 4.5% next year.
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Weak economy and trillions of cash are quite a mix for #EURUSD.
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[fibogroup.com]

Market Watch
Tolerance for risk continues to increase

In today's release, we’ll cover the following topics:
- US dollar weakness throughout the market.
- US inflation report.
- The decision on interest rates and control of the yield curve from the US Federal Reserve.

On the second trading day, we are observing a general weakening of the USD along with most currencies. As a result, the US dollar index once again reached new lows and before the opening of the American trading session, the general trend of trading remained downward, indicating a clear weakness of USD buyers.

I will draw your attention to the EUR / USD currency pair. During the European trading session, the quotes were held below the resistance area of 1.1370–1.1385. A potential breakthrough could trigger some robust growth, paving the way to 1.1485.

A similar situation with the AUD / USD currency pair. Quotes were held at the psychological resistance level of 0.7000, and a break will confirm added buying interest and a potential move to the next technical resistance level at 0.7180.

Now let's move on to the upcoming publication of the US inflation report. A sharp decline in the consumer price index, which analysts are not expecting, may put additional pressure on the USD. A more significant event for the markets will be the latest interest rate decision from the US Federal Reserve and the subsequent press conference.

Rates are expected to remain on hold so all attention will be focused on the decision of the Federal Reserve to control the yield curve. Despite the fact the probability of using this monetary instrument is low, the USD has noticeably weakened against most currencies.

It’s worth noting that the introduction of control over the yield curve for US government bonds will lead to an increase in demand for gold, as an alternative to US treasury bonds. Therefore, there is a risk of a further increase in the prices of gold and silver. In addition, it is important to understand that any decision by the US Federal Reserve can have a big impact on the USD.

That’s all for me. Closely monitor the news background and be prepared for all the surprises of the market.
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[fibogroup.com]

USA: Prices are not rising fast enough

Coronavirus continues to affect US consumer prices. Over 12 months the annual basic consumer price index only grew by 1.2%. However, the reaction of the main financial assets to the worsening inflation rate is zero. The dollar is in flat. The reason for this is the forthcoming publication of the results of a two-day meeting of the US Federal Reserve in a few hours. In fact, the dollar hovered over the abyss - if today the Fed moves to targeting returns, the dollar will collapse. (#EURUSD target 1.1500)
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Fed: The rate will not change for another 2 years

"We're not thinking about raising rates," Mr Powell told reporters on Wednesday. "We're not even thinking about thinking about raising rates."

- The magnitude of the economic downturn in the United States is extremely uncertain. The Fed forecasts a 6.5% drop in GDP with a jump in unemployment to 9.3% and a slowdown in inflation to 0.8% - and the economy will return to pre-crisis levels only in 2022.
- At the same time, the Fed reacted to the May data from the labour market (Unemployment in May 13.3%), saying that the United States may have bottomed out.
- As expected, the Fed will continue to buy assets at a current rate of $120 billion per month ($80 billion repurchase treasuries; $80 billion repurchase corporate debt securities).
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US Department of Energy: Record Oil Reserves

- Crude oil reserves in the United States increased by 5.7 million barrels per week and set a historical record of 538.1 million barrels. The current volume of oil reserves is 14% higher than the average level for the previous five years.
- In addition to the published data, the US Department of Energy announced the acquisition of 126 thousand barrels of oil into emergency reserves as authorities seek to help oil producers cope with declining fuel demand. The intention of the US Department of Energy is to acquire 1 million barrels of oil reserve soon.
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Oil prices, in their first reaction to the US Department of Energy report on raw materials in the country, rose 40 cents to $40.75 per barrel.
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