Tips for traders, 6 May 2020
Growth in the number of patients with covid-19 seems to be out of focus for markets; instead, they are focusing more on other impacts. In the next few weeks, we will see more and more earnings reports from companies all around the world. American companies will be the main focus which might have the largest effect on global equity markets.
More and more lockdown easing across regions also eases the pressure on the global economy as more and more businesses are allowed to operate again, albeit partially. With the current policy, the least of the impact that businesses can feel is the easing of sunk cost that has been invested.
Recently many traders have felt that the volatility of the market in general has decreased significantly. As a matter of fact, the VIX has dropped from its level near the all-time high from 2008 to almost its normal non-volatile position. This is a sign that there is a lot of liquidity flowing into the market, seen with the surge of many shares since the selloff in March.
Besides that, the price of gold is also stabilizing at around $1,680 to $1,720/troy ounce, which is also its resistance area. The fact that there is a substantial amount of liquidity into gold means that there are traders who take profit from surges and cause the price of gold to stagnate in that area.
Anticipating worse data in the next few weeks and months, central banks all around the world have acted swiftly by cutting rates while loosening monetary policy. This has caused more and more liquidity to come into the market together with unlimited quantitative easing in many countries.
What can traders do?
Anticipation is the key in the current situation. As a trader, it is much better to keep risk tight and be very sensitive to any changes. This will help traders to gain while maintaining as little risk as possible. Rate cuts weaken the currency of a country as does loosening the monetary policy. Traders who aim for the shorter term might be safer in this situation.