FX Flows Rather Quiet after Optimism Wanes
NOVEMBER 18, 2020
The U.S. Dollar is trading in familiar ranges only seeing some advancement for the Japanese Yen, perhaps as the reaction to vaccines in the making is fading.
Indeed, the Dow Jones has yet to reach its desired zenith of 30K and beyond. There is certainly concern amongst economists following the big drop in Retail Sales from one month to the other, which was a gauge of activity prior to all these new restriction announcements and before we had record after record of infections as well as hospitalizations.
Dwindling numbers in fundamentals put us back in a similar uncertain situation that we experienced in March and April in which FX flattens or looks somewhat dollar-trendy while global markets hit the brakes on risk-taking.
Of course, a news item that stipulates a vaccine will be handed out in January would get us back on Monday mode, where optimism will have riskier assets propel higher. The winter is looking to be a time of high volatility.
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The Euro was improving and then it came to a limit, but we are waiting to see if it starts heading down in value after some negative headlines over monetary policy and the implementation of the rescue fund. While the economic recovery itself is threatened by the ongoing pandemic woes, Christine Lagarde says it is not that significant to hear about a vaccine.
The news is welcomed by speculators in markets, but authority figures see the need for prolonged help to the global economy as distribution and other logistical headaches could come along in trying to vaccinate.
Additionally, the German government is trying its best to convince Hungary and Poland to refuse their veto of the funds going to countries that adhere to EU political norms, justice, and diplomacy. Billions are yet to be distributed and the business world is feeling the pressure.
The Pound surged yesterday, but it is facing a bit of pullback as traders become nervous about the future of Brexit. The departure of Dominic Cummings seems to give the impression that Prime Minister Boris Johnson can act now more on his own and agree to concessions to the EU that Cummings would have never allowed.
Nevertheless, the risks remain high that there will be no trade deal anytime before a deadline and a delay into 2021 may be best as the U.K. deals with the damage COVID-19 is still bestowing upon all of Britain. Scotland was also looking to have a referendum on independence so there needs to be a focus on fixing domestic relationships.