European markets are set to open more stable this morning despite a weak close in U.S. markets which was mainly due to the bad retail number and high volatility in the commodity market.
Yesterday, was the perfect example of catching the falling knife. Fundamentals do not matter when something is extremely cheap and this is what we have seen, especially for oil. The economic news wire was mostly negative such as a negative news from Asia- Chinese economic data was poor which means less demand for oil, in Europe the overall data was poor enough, and in the US, the retail sales number were appalling which one would expect to show s robust print due to the falling oil price, but we will still had crude oil trading up, because it was trading extremely cheap.
Another reason was that many investors strongly think that the $60 is the major support for crude and it will take a lot of bad news for the crude price to break this level. The B/E point for the US shale is $60 and americans may not be able to produce, if the price drops much lower than this.
Finally from a technical perspective, it is also a bit of correction for the crude price after a sharp sell off which we have experienced recently and the price was well off from its mean.
Gold
The precious metal moved nearly $80 yesterday, which was a massive opportunity for a day trade who love huge volatility. Up to 40 dollar move is not unusual for a good volatile day for the metal, but 80 dollar move is like, Christmas coming early for some.
Most of the buying was mainly due to the bargain hunting which happened after the Swiss vote and the price dropped sharply. Secondly many investors have also bought this as a hedge, given that what we have seen in the currency market which was purely due to the crude oil price. There is certainly a big concern among investors, that falling crude prices like this, could really crush the recovery in the longer term.
Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.