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Fears of new Covid-19 strain fuel risk-off USD rally
The Dollar rose to the weekly high amid flight of investors from risk assets in Europe and Asia. A growing number of countries announce restrictions and partial lockdowns (for example, in Australia) as well as impose travel curbs with certain countries. The United States has added Saudi Arabia to its covid list with the note “not desirable to visit” which is not a good sign for risk sentiment outlook. In addition to local sell-off in affected sectors, government responses force markets to take seriously the threat of the spread of the new strain. A direct consequence of this is an overall rise in risk aversion level.
The data on inflation in Germany were in line with the forecasts, however markets needed an upside surprise to keep the euro supported. The absence of inflation risks in the data is a favorable signal for the ECB, which seeks to delay the start of tightening policy. The report fueled sell-off in EURUSD.
From the technical point of view, EURUSD outlook is becoming more bearish. The price consolidated below the lower bound of the trend channel after the breakout, which increases the chances of a further decline:
The situation is similar in GBP, only the decline there is even more powerful, since the Bank of England disappointed with its policy decision last week while covid situation is apparently slightly worse than, for example, in Europe:
Despite the rise in cases, the hospitalization and death rates need to be closely monitored to see if the government can move to restrictions. If the numbers are favorable, the risks of new restrictions in GBPUSD will decrease, which will speak in favor of strengthening of the pair. However, it is too early to talk about it.
Currencies sensitive to oil prices suffered losses on Tuesday awaiting OPEC's decision to increase production by 500 thousand bpd. OPEC meeting is due later this week. The correction in oil may continue should key oil consumers roll out more restrictions, which will undermine the outlook for oil demand growth.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The Dollar rose to the weekly high amid flight of investors from risk assets in Europe and Asia. A growing number of countries announce restrictions and partial lockdowns (for example, in Australia) as well as impose travel curbs with certain countries. The United States has added Saudi Arabia to its covid list with the note “not desirable to visit” which is not a good sign for risk sentiment outlook. In addition to local sell-off in affected sectors, government responses force markets to take seriously the threat of the spread of the new strain. A direct consequence of this is an overall rise in risk aversion level.
The data on inflation in Germany were in line with the forecasts, however markets needed an upside surprise to keep the euro supported. The absence of inflation risks in the data is a favorable signal for the ECB, which seeks to delay the start of tightening policy. The report fueled sell-off in EURUSD.
From the technical point of view, EURUSD outlook is becoming more bearish. The price consolidated below the lower bound of the trend channel after the breakout, which increases the chances of a further decline:
The situation is similar in GBP, only the decline there is even more powerful, since the Bank of England disappointed with its policy decision last week while covid situation is apparently slightly worse than, for example, in Europe:
Despite the rise in cases, the hospitalization and death rates need to be closely monitored to see if the government can move to restrictions. If the numbers are favorable, the risks of new restrictions in GBPUSD will decrease, which will speak in favor of strengthening of the pair. However, it is too early to talk about it.
Currencies sensitive to oil prices suffered losses on Tuesday awaiting OPEC's decision to increase production by 500 thousand bpd. OPEC meeting is due later this week. The correction in oil may continue should key oil consumers roll out more restrictions, which will undermine the outlook for oil demand growth.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.