Forex Commentary: 19/06/2020 – Stocks drift, dollar strength holds firm amid growth, second wave of corona virus worries

Corona Virus

Risk appetite is looking increasingly on borrowed time as stocks turned sideways. Having lost momentum after last week’s sell-off global shares on Friday could only manage a tepid rebound from Thursday’s dip amid ongoing worries about the surge in new virus cases in the United States. The number of new daily corona virus cases reached record levels in ten US states this week, putting into jeopardy the reopening of the economy.

Fresh doubts about the economic recovery were also raised from stubbornly high weekly jobless claims out of US. Thursday, there was
better news elsewhere however as China said the outbreak in Beijing has been contained. The mixed news flow kept Friday’s gains and equity markets in check with S&P 500 emini futures indicating a 0.5% rise at the open on Friday on balance despite the latest setbacks in the medical and economic data. The prevalent mood is still one of optimism as investors remain hopeful that a vaccine will be found before the end of the year enabling economies to fully recover from the pandemic. However, even if those expectations were to materialize there are plenty of other risks that markets have been ignoring lately; the main one being the recent souring of sino-us relations Trump’s tweet that a complete decoupling from China is a policy option for the US could be one factor buying the safe-haven gold. On Friday the precious metal was last trading up 0.5 percent, though it remains flat on the week.

The US dollar and yen on the other hand have had a clearer trend moving steadily higher since Tuesday as the rebound in stocks fizzled out. The weakening risk on tone has been a major drag on the euro and pound as
well as the commodity linked dollars. The Euro hovered around the $1 12 level as it’s looking unlikely that a deal on an EU fiscal package will be reached before July at the earliest. The pound slid sharply after the Bank of England struck a somewhat hawkish tone at its policy meeting on Thursday as expected. The bank added 100 billion pounds to its bond purchases but his policy statement hinted at no further stimulus for the rest of the year.

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