Twists & Turns In The Financial Market

Twists & Turns In The
Financial Market  

Current market conditions are being jeopardized by the
COVID-19 pandemic, where irregular movements in the financial markets are
giving investors headaches with their portfolio management. Furthermore, price
actions are disrespecting both fundamentals and technical, ignoring both
boundaries as it moves accordingly to market sentiment and preference.

The first example can be seen when comparing both the
safe-haven gold and the DXY, where both instruments under normal market
conditions should have a negative correlation with each other. However, during
this pandemic, both instruments are gaining overall, showing a positive
correlation in terms of its price action. One primary reason is that both are
having strong safe-haven properties during signs of economic recession.

Next, we can also see the chaotic conditions in the
stocks market, where US stocks such as Dow Jones and Nasdaq are falling to
record low due to the impact of the COVID-19. In normal market conditions, an
increase in US stock prices should encourage higher demand for the US dollar as
it is needed to purchase the stocks. However, despite the significant plunge in
its stocks market, the value of the dollar remained resilient, showing negative
correlations with stock prices.

One arguable statement would be the market’s
preference towards the greenback and US economy. A reasonable argument would be
that investors are all in panic mode, waiting out for more precise signals in
the market before making any investment decisions. So in this ‘wait-and-see’
approach, they are holding on to the US dollar, with confidence that the US
economy will still predominate during severe market conditions like now.

Previously, the dollar index was being sold-off from a
record high above the 103 handle during the last week of March, breaking below
both its 20 and 50 EMA to the 98 handle, indicating a substantial change in
market trend. However, DXY pared most of the losses as it makes its way back
above the 100 handle, despite weak jobs data. According to last week’s jobs
data from the US, Non-farm Payroll reported a loss of 701K jobs in March, much
higher than its expected value of only 100K loss jobs; Unemployment rate rose
from 3.5% to 4.4%, exceeding economists’ forecast of only 3.8%.

With such bearish reports from the US, the market was
expecting the dollar to be dragged lower, also supported by technical breakout
below its EMA. However, a turn of events shocked the market after DXY ended
Friday’s market with gains. As the price of an instrument is driven by demand
and supply, the explanation for the market’s movement was just preferenced.

With the number of cases spiking gradually in most
countries in the Eurozone, the economic prospect for the region remains sour,
with fears that the economy would fall lower if the virus persists.
Furthermore, the recent announcement of UK PM Boris Johnson being admitted to
the hospital due to the COVID-19 also spiraled uncertainties towards the UK.

We can conclude that during times like this, economic
conditions would overall be the same – poor for countries across the world.
However, preference towards the most robust economy in the world – United
States of America, remains.  

Regain Capital wishes to remind readers out there to
continually wash your hands, stay hygienic, drink tons of water, and keep
social distancing. Stay home, stay safe, stay healthy. 

Photo Credit: www.afr.com /Illustration: David Rowe