In many markets, including precious metals and cryptocurrencies, there has been a strong correction of previous increases. The biggest part of the whole movement took place on Friday when data from the American labor market appeared and as a consequence, Joe Biden announced further aid programs.
The price of gold from the local peak established on 6 January around 1960 USD dropped by almost 7.5 percent until this morning. Silver dropped by a total of about 13 percent, while bitcoin declined by about 18 percent and ETH by more than 20 percent. It seems, therefore, that a significant appetite for cash appeared on the market in a relatively short period of time, which resulted in a significant meltdown in the described asset classes.
The situation on the U.S. labor market indicates problems in the economy, which may contribute to a return to cash. The yield of the American debt has also increased. Ten-year U.S. bonds indicated yields above 1.1 percent. Hence, some capital could flow from these markets to the bond market, as their prices fell and could become more attractive for investors who want to invest their capital very safely.
The increase in US bond yields, together with Joe Biden's announcement of another trillions of dollars worth of aid to the US economy, may also cause the USD to strengthen. Meanwhile, a stronger dollar may lower the prices of everything expressed in it. Including gold, silver or bitcoin. Therefore, the coming weeks may be an important test for many markets. It seems that the U.S. dollar market may see a bigger correction. The exchange rate of the main currency pair EUR/USD indicates the possibility of going back to 1.16-1.17. If this were to happen, then in theory the commodities or stock market could fall. However, if, despite the correction for the USD, the other markets show relative strength, it could be found very difficult to make larger corrections because there is a lot of capital that has to be invested somewhere in the markets.
However, at present, both the US and European stock exchange indices show declines. DAX 30 completed a series of three growth sessions in a row and seems to be falling by 0.9 percent from the all-time record set on Friday. Investors may also be concerned about further COVID-19 infection records and the scale of hospitalization, with most of Europe being subject to the harshest restrictions. Restrictions are expected to be even tighter in the UK. China has seen the biggest increase in new cases in over five months. Tensions have also increased between Beijing and Washington as the US has reported that it is lifting restrictions on Taiwan.
The U.S. is starting a season of quarterly company results. Citigroup, Wells Fargo and JPMorgan will report this week. S&P 500 companies' results were expected to fall by 12 percent in the last three months of 2020, according to Bloomberg. Therefore, the announcements for the next quarters will be crucial, as the market seems to be pricing the significant improvement of results.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
76.44% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
