HYCM Market Insights & Trading Tips

UK inflation fell strongly yesterday
by Giles Coghlan, Chief Currency Analyst at HYCM

UK CPI data came out firmer than expected at 0.2% vs 0.0% expected. However, although this beat expectations this was still a drop from July’s reading of 1.0%. Some of the reasons for the fall in inflation was the UK’s ‘eat out to help out scheme’. In this scheme restaurant meals were half price for people for a time over the summer. So, inflation should push up now that the scheme is over.

However, the jobs market in the UK is poised to worsen. A recent UK article forecasts that UK unemployment is going to be twice as worse as the Global Financial Crisis. 380,000 redundancies have been planned from May to July and that number could rise to 780,000. Check out the BBC article here. The figures were obtained from the Institute for Employment Studies (IES) through a freedom of information request. So, with potential unemployment ahead for the UK the return to 2.0% inflation is going to be a long road to travel.

This bearish outlook for the GBP, not to mention the associated Brexit risks which have ramped up, means that the BoE may increase asset purchases (QE) tomorrow, They may even signal easing into the next rate meeting. So, the risk is tilted to GBP selling heading into the decision today at 12:00 BST (11:00GMT).
Taking a look at the GBPAUD chart you can see that price has broken out of a descending triangle pattern on the daily chart. A bearish BoE will push the price lower, so this is one chart to watch.


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Market Mood EURGBP 17.09.20
by Giles Coghlan, Chief Currency Analyst at HYCM

Listen to the latest market mood for the EURGBP pair on Youtube.



Strong EUR, Weak GBP

The GBP should remain pressured in the medium term. There are a number of growing risks. Inflation has fallen m/m to 0.2% vs 1.0% in July as airline prices helped drag inflation lower. The end of the UK’s furlough scheme is due to come to an end in October. Many companies have been waiting to announce redundancies for the end of the scheme. The Bank of England has forecast that the unemployment rate will hit 7.5% at the end of this year when it is expected to expand its bond-buying stimulus programme again. So, low inflation, a falling GDP, extensive job losses and that is not to mention Brexit risk should all weigh on the GBP going forward. The Bank of England may even announce a surprise rate cut today, so be alert for that today at 11:00GMT.

The EUR should remain supported against the GBP as the ECB was less bearish than expected at the last rate meeting on Thursday last week. They even revised some inflation projections higher and were not overly alarmed about the euro’s strength.

Therefore, from a medium-term perspective expect EURGBP buyers from pullbacks.

Trade Risks:

1. A successful Brexit deal
2. A faster than anticipated fall in Europe’s economy
3. Steeper numbers of COVID-19 cases in Europe than the UK

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Strength for copper ahead?
by Giles Coghlan, Chief Currency Analyst at HYCM

With green technology relying heavily on copper for conducting electricity via wiring and conductors the need for copper is expected to grow in the coming weeks and months ahead. One near term potential boost for copper may well be the US elections coming up. Whereas President Trump plans to spend more on roads, bridges, and airports he has signaled very little interest in ‘green’ investments. Joe Biden, by contrast, has said that he will spend around $2 trillion over four years to improve infrastructure, create zero-emissions, public transport, and create clean energy jobs. So, a Biden Presidency stands to encourage significant green tech spending. That will be a boost for further copper demand.

The recent positive retail sales data and industrial production figures from China see brightening prospects for China’s economy. Furthermore, the OECD said that the global slump will not be as bad as it had previously projected. The Organisation for Economic Co-operation and Development was founded in 1961 to stimulate world trade and economic progress. Their latest GDP projections for this year and the next had world GDP at -4.5% for 2020 and +5% for 2021. Off the major countries and trading blocks, China alone was projected to keep in positive territory. The OECD projected growth of +1.8% this year and +8.0% in the year ahead.

With the latest rate meeting from the Fed passed and the Fed projected to keep rates near zero through 2023 the stimulus from the Fed for further growth is there. According to former Goldman Sachs Group Inc Chief Executive Office Llyod Blankfein, it is probably a good time to invest in commodities while prices are lower.



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FX Week Ahead 21.18.20
by Giles Coghlan, Chief Currency Analyst at HYCM

This week the Federal Reserve committed to keep policy accommodative for as long as necessary. The dot plot had officials seeing US rates at their current ultra-low right through 2023. The immediate reaction to the Fed’s decision was USD strength. This was because the market was hoping for some announcements of extra stimulus. However, with US elections ahead that was unlikely. The takeaway point is that the Fed is set to maintain a low rate and loose accommodative policy for years to come. This should keep US equities supported and hold the maxim true, ‘Don’t bet against the Fed.’
Key events from the past week

1. USD: Fed rate decision, September 16. The Federal Reserve kept interest rates unchanged near zero and indicated that they would stay there for at least three years. It also cautioned that the pace of economic activity would likely slow after ‘the recovery has progressed more quickly than generally expected’.
2. GBP: BoE rate decision, September 17. With Brexit risks ahead the Bank of England faces further headwinds. The BoE revealed negative rates are now under consideration which opened up immediate GBP selling. See here for some of the comments to CNBC this week on the decision.
3. GBP: PM Johnson Compromises: September 16. PM Johnson has agreed to compromise on his controversial Internal Market Bill according to Business Insider. However, as far as the EU is concerned, even with these amendments they still consider this Bill a breach of international law. More GBP risk is ahead.

Key events for the coming week

1. NZD: RBNZ rate decision, September 23. The New Zealand treasury department revised unemployment levels higher for New Zealand this week, but will this optimism be echoed by the RBNZ?
2. CHF: SNB rate decision, September 24. The SNB has the lowest interest rates of all central banks at -0.75%. Analysts’ expectations are for no change in the rates from the SNB. However, watch out for any comments on the value of the CHF that shows the SNB increasing their intervention in the EURCHF pair.
3. EUR: German Manufacturing, September 23. The EUR gained after the ECB was more optimistic than the markets were expecting last week. A rise in Ger-man manufacturing this week would further bolster the ECB’s confidence and support the Euro.

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Market Mood XAUUSD 18.09.20
by Giles Coghlan, Chief Currency Analyst at HYCM

Listen to the latest market mood for the XAUUSD on Youtube.


Gold has a number of factors supporting it at the moment.

Firstly, the Federal Reserve kept interest rates unchanged near zero and indicated that they would stay there for at least three years. It also cautioned that the pace of economic activity would likely slow after ‘the recovery has progressed more quickly than generally expected.

Secondly, Gold-backed ETF”s and similar products recorded their ninth consecutive month of inflows in August. Gold ETF’s added 39 tonnes during the month the equivalent of $2.2 billion under asset management.

Thirdly, the bank of England showed a willingness to move towards negative interstate rates and money markets now have them moving negative in February 2021. This confirms what we already know that interest rates are low around the world.

Therefore, in a low-interest rate world, gold should benefit. Technically gold has formed a large bullish symmetrical triangle pattern and buyers will have stops sub $1900 looking for recent highs as a first target.

Trade Risks:

1. A quick US economic recovery where rates are seen rising more quickly
2. Hawkish comments from the Fed which strengthen the dollar
3. Dollar strength

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Market Mood GBPUSD 23.09.20
by Giles Coghlan, Chief Currency Analyst at HYCM

Listen to the latest market mood for the GBPUSD pair on Youtube.


Weak GBP, Strong USD

The GBPUSD is sitting on some pretty heavy support on top of its 100 and 200 daily moving average. The uphill battle for the GBP is becoming stronger with increasing UK restrictions to slow down COVID-19. The USD is helping GBPUSD falls as it is also finding strength from a combination of general risk aversion and position trimming into quarter end.

With rising COVID-19 cases, job losses expected at the end of the furlough scheme, negative rates gently hinted at by the Bank of England, and potential Brexit calamity expect sellers on the GBPUSD pair.

Therefore, expect GBPUSD sellers at market.

Trade Risks:

1. If risk sentiment improves today this will negate USD strength and invalidate this outlook.
2. If a Brexit deal is done that will result in GBP strength.

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Reasons for the AUDUSD to remain supported medium term
by Giles Coghlan, Chief Currency Analyst at HYCM

At the start of the week RBA’s Deputy Governor Debelle signaled little urgency to take measures that would seriously weaken the AUD. Debelle did say that ‘negative rates are possible’. This did send AUDUSD under 0.72. However, taking the speech as a whole means the AUDUSD is likely to show dip buyers as it goes back down.
The Reserve Bank of Australia’s focus on the very short end of the bond market makes the way for longer end yields to rise higher and that should support the Australian Dollar. The AUD 10 Year bond now pays around 20bps more that US Treasuries. If you take a look at the chart below you can see the yield spread between the AUD10Y and the US10Y bond. It is the blue line on the chart. This is the yield of the Australian 10 year bond minus the yield of the US 10 year bond. This is called the ‘yield spread’ and it is an important indicator. When the AUD bond yields more than the US 10 year bond you can see the AUD strengthen against the AUDUSD. Look at the chart below with the overlay of the yield spread and the AUDUSD chart which is a candlestick chart.


Taking a look at the yield spread from 2018 to 2019 you can see that the yield spread between the AU10Y and the US10Y was offering a discount. It was sub 0.00 as highlighted on the chart below.


The spread remains in positive territory now which means that AUDUSD buyers should remain buying on dips on falls back down towards this years lows. It is just a question of how deep those dips will be which is very hard to gauge at the moment after the recent sell offs. However, the RBA’s yield curve control should continue to support AUD strength as they need to encourage foreign investors to buy their bonds. Policy makers will want to keep a high enough yield to incentivise foreign investors. This means that the AUD is well placed to pull out strongly from any further risk off falls if/when the rebound comes. The recent lows down at 0.5400 look like a reliable bottom as long as the positive yield differentials remain.


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Market Mood USOIL 24.09.20
by Giles Coghlan, Chief Currency Analyst at HYCM

Listen to the latest market mood for the USOIL on Youtube.



Earlier this month that both the IEA and the OECD cut their global demand projections for oil consumption. The latest monthly OPEC report projected that oil demand growth for OPEC crude would fall by 700K bpd to 22.6 mln bpd for 2020. The future demand growth was revised down even further for 2021. This was reduced by 1.1mln bpd to 28.2mln bpd. The reasons that OPEC cited the 2020 demand cut was due to weaker oil demand performance. Unsurprisingly, OPEC said risks remain elevated and skewed to the downside, particularly due to COVID-19 related risks. With the latest risk off moves hurting equity markets and COVID-19 cases rising sharply in Europe oil markets are likely to remain pressured in the near term.

Therefore, expect US oil sellers at market.

Trade Risks:

1. A vaccine will negate this outlook and inspire confidence in rising demand for oil.
2. If Libya’s oil production does not come back on line that will support oil markets in the near term.

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Oil market showing signs of weakness
by Giles Coghlan, Chief Currency Analyst at HYCM

It was around the middle of this month that both the IEA and the OECD cut their global demand projections. The latest monthly OPEC report projected that oil demand growth for OPEC crude would fall by 700K bpd to 22.6 milk bpd for 2020. The future demand growth was revised down even further for 2021. This was reduced by 1.1mln bpd to 28.2mln bpd. The reasons that OPEC cited the 2020 demand cut was due to weaker oil demand performance. This was especially highlighted in the sector called ‘other Asia’, especially India. OPEC reported that the effect on oil demand in ‘other Asia’ is likely to spill over into 1H21 with a slower recovery in transportation fuel demand in the OECD countries. Unsurprisingly, OPEC said risks remain elevated and skewed to the downside, particularly due to COVID-19 related risks.

According to Bloomberg yesterday on their market’s live Blog, there are now further signs of global demand slowing down. China’s buying spree is losing strength. India’s demand is slumping with the nation still trying to contain the outbreak, and the bleak outlook for further US stimulus is weakening the consumption expectations for the US. In turn, more production is set to come back on line with Libya moving nearer to re-open their wounded oil industry. Goldman Sachs project that around 500K bpd will be coming back into production by year end. On top of this OPEC+ did not discuss the potential of restoring some of their production cuts at last week’s meeting.

Technically price is contained by the 200DEMA on the daily chart, so that should provide near term risk for sellers.

This should invite US oil sellers on any rallies higher as long as this situation remains the case.


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Why the copper market is vulnerable to sellers
by Giles Coghlan, Chief Currency Analyst, HYCM

Industrial metals had been gaining for many months. However, now we are starting to see some falls. The reason for the falls is because of the increase in COVID-19 cases in the Northern Hemisphere. Cases are starting to show signs of an increasing momentum For example, Spain and France now have more than 10,000 cases per day as a 7 day rolling average. This is nearly 2000 cases a day greater than in the first wave around March and April. See chart here from the Guardian:



Copper, Zinc, and Aluminium have been some of the worst performing commodities during very recent trading and probably only demand picking up from China will halt the declines.

Bloomberg’s Industrial Metals Subindex has been rising for five months. It climbed 22% from June to August. The rise in the metals markets was due to the re-opening of economies over that period. So, copper rose 25% between June and August and Zinc jumped 24%.

However, as the pandemic is gripping again in the Northern hemisphere the Bloomberg Industrial Metals subindex is now down 3.6% and has taken out a key trend line. See chart below:


The index is now heading for its first loss since March. Unless China can try and keep the demand levels alive and prevent further falls Copper futures looks very vulnerable to selling into daily support. Dr Copper is always a good bell weather on the state of the global economy. If more restrictions and lockdowns grow then Dr Copper should indicate the worsening global outlook.


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Market Mood XAUUSD 25.09.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the XAUUSD on Youtube.



There are some important reasons for gold to remain supported over the medium / long term. Firstly, very low interest rates globally and the Fed's dot plot doesn't see any hike in rates for the next 3 years. Rate hikes are off the cards for now. Secondly, huge amounts of money are being printed by central banks around the world via their QE programmes. This all devalues currencies.Thirdly, their are poor returns expected in equity markets with many investors concerned that COVID-19 is going to hinder economic recovery for the medium term for many companies.

So medium term gold buyers may be tempted to take a nibble at a gold long here as price rejects the 100 Daily EMA.

Trade Risks:

1. A vaccine will negate this outlook and inspire confidence for central banks to look at rising rates.
2. Further equity selling will negate this outlook and result in gold falling lower into next support around $1800.

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FX Week Ahead 28.09.20
by Giles Coghlan, Chief Currency Analyst, HYCM

This week saw strong risk aversion enter markets at the start of the week as equity markets witnessed heavy selling pressure. The risk off sentiment in these markets saw risk flows into both the JPY and the USD. The USD saw some solid days of buying with the Dollar Index taking out the 94.00 handle midweek. The EURUSD fell down through a key daily channel and below a weekly trend line below 1.1750. Any further risk off sentiment on global recovery fears is likely to further benefit USD buyers and increasingly weigh on the EURUSD in the coming week.

Key events from the past week

1. NZD: RBNZ rate decision, September 23. The RBNZ kept interest rates unchanged at 0.25% & asset purchases the same at NZD $100 billion. The RBNZ confirmed that a negative interest rate move remains under consideration. This should keep the NZD pressured in the medium term. See full statement here.
2. Gold falls: Dollar strength drags gold lower. The USD strengthened on risk aversion and quarter end USD flows. This dragged gold lower down through the large symmetrical triangle pattern forming on the daily. Next major support is seen at $1820.
3. EUR: A ‘V’ Shaped in doubt: Weds Sep 23. Services PMI’s were weaker from the Eurozone this week coming in below market expectations at 47.6 vs expectations of 50.5. With COVID-19 restrictions increasing across Europe this sends out a signal to encourage EURUSD sellers looking for a move below 1.1600.

Key events for the coming week

1. CNY: Manufacturing PMI, September 30. Chinese PMI data this week has the potential to bring the AUD lower. After the investment bank Westpac projected a coming RBA rate cut, any weakness in China’s data this week will drag on Australia’s economy and may increase expectations of a coming RBA rate cut.
2. GBP: Monetary Policy Report hearings, September 30. At the latest BoE rate meeting the chances of a negative rate cut were increased with the news that the BoE instructed the Monetary Policy Committee to investigate the implications of negative rates. Any further hints at negative rates will weaken the GBP.
3. USD: Employment data, October 02. US Employment data will be in key focus next week to see how the US labour market is holding up. At the moment the Fed is set to keep rates unchanged for three years. What signals will the US labour market send on Friday?

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Will the Dollar Index reach 100 or 90 first?
by Giles Coghlan, Chief Currency Analyst, HYCM

The dollar index is currently sitting between 100 and 90 around 94.30 at the time of writing. The recent USD strength is likely to be limited and the DXY should be more inclined to reach 90 before 100. Much of the recent Dollar strength has been around two things. Firstly, on US election uncertainties. With President Trump not agreeing to a peaceful transition and a tight run race, this has resulted in US strength. Secondly, rising COVID-19 cases in Europe have dragged the EURUSD lower. Technically the EURUSD is being pushed back down into a large downtrend from 2008.



Once the election tensions fade then the EURUSD will be driven by the fact that the Fed’s stimulus is greater than the ECB’s. Therefore, the DXY is more likely to make a move down towards 90 before 100. Remember that EURUSD weakness = DXY strength and vice versa due to their tight negative correlation.



US elections are close and tense. The ‘sell everything’ feel has definitely been here with heavy global stock selling and Covid-19 cases have been rising sharply in Europe. So, this current market mood feels like a repeat of March’s price action when the virus cases started rising for the first time. One area worth looking at closely is for a recovery in the stock markets. If we see this it should be a key catalyst for the dollar Index to continue its falls.


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Market Mood GBPJPY 28.09.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the GBPJPY pair on Youtube.

Attached Image (click to enlarge)

Weak GBP, Strong JPY

The GBP has reasons for weakness in the near term. Firstly, policymaker Silvana Tenreyro was positive about negative interest rates and suggested that discussions on such a move were ‘encouraging’. Secondly, the risks of unemployment rising sharply in the UK over the next couple of months are high as the furlough scheme is ending and the job retention scheme is limited in its scope. Thirdly, Brexit negotiations are ongoing and there is still likely to be ups and downs in the GBP as these negotiations remain.

The JPY will find buyers on any return to risk-off trading and expectations of structural reform with President Suga now in place. Therefore, expect GBPJPY sellers from rallies higher.

Trade Risks:

1. A positive Brexit deal will invalidate this outlook.
2. A return to risk-on sentiment will invalidate this outlook.

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Market Mood XAUUSD 29.09.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the XAUUSD on Youtube.



Gold has reasons for strength in the medium term.

The record low-interest rates around the world mean that cash investors have little incentive to keep assets in cash. Secondly, the huge amounts of quantitative easing from the central bank around the world mean that cash is literally devalued. This increases the appeal of gold. Thirdly, the fact that real yields are negative on US 10 year bonds means that if investors parked their money in a 10-year bond it would, when inflation is taken into account, actually mean that yields on the bond would be negative.

XAUUSD has now formed a triple bottom on the 1-hour chart and a break higher would make sense technically here.

Therefore, expect XAUUSD buyers from the market.

Trade Risks: Heavy equity selling will invalidate this outlook as gold has been falling recently when the equity markets fall.

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Is the dollar squeeze higher over?
by Giles Coghlan, Chief Currency Analyst, HYCM

Despite the falls in the USD to start the week the recent USD strength may continue this week for at least three reasons. Firstly, the quarter-end rebalancing flows are expected to boost the USD. Secondly, there is a conference on Wednesday titled ‘the ECB and its watchers’ and this may work as a catalyst for USD strength. Thirdly, there are risks around the US presidential debate today.

Tuesday’s US presidential debate

Biden is ahead in the national polls at the moment. However, betting odds (a good proxy for markets thinking) are showing a tightening race. FiveThirtyEight are currently showing a Biden win at 77%. If the debate goes well for Biden then the centre of gravity could shift to solid expectations of a Democrat win and a major stimulus package coming in the New Year. This would likely move yields higher and support the USD. However, if the debate causes Biden to slip back in the polls this could heighten investor concern and encourage volatility.

Finally, virus cases are continuing to rise in Europe. However, deaths are not spiking higher in the same way that they were in the first wave.



So, the European PMI data out this week will be important. If we see another drop in PMI’s then we can expect EUR selling. This euro weakness will further support the dollar higher.


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Trading the GBP: A balance between policy and Brexit negotiations
by Giles Coghlan, Chief Currency Analyst, HYCM

Have you wondered how to trade the GBP recently? You can be forgiven for finding it tricky as the GBP has seemed to be moving against its fundamental drivers at the time over the last few months. However, trading the GBP at the moment simply involves balancing current Brexit optimism on a trade deal vs the wider economic situation of the UK.

UK economic policy: a move towards negative rates?

Over the weekend policymaker, Silvana Tenreyro said that she did not expect Britain to experience a fast V-shaped recovery for three reasons. Firstly, due to headwinds from local flare-ups in COVID-19, secondly due to rising unemployment, and finally due to a weak global economic outlook. See here.

Since August the BoE has been warming to the use of negative interest rates. In September the BoE said that the Monetary Policy Committee had been briefed on exploring how a negative bank rate could be implemented effectively. This headline meant that money markets brought forward expectations on UK interest rates turning negative. Negative rates were now seen as appearing in Feb 2012 after the meeting vs March 2021 prior to the meeting.

These expectations of negative interest rates have grown further since Tenreyro said that evidence from Europe and Japan showed that cutting interest rates below zero had shown some elements of success. They had cut the cost for companies to borrow money and yet still made it profitable for banks to lend.

Unemployment risks ahead for the UK

The risks of unemployment have risen sharply in the UK over the next couple of months. The furlough scheme is ending and the new job retention scheme is much limited in its scope. Exactly how the job market will be impacted is still not fully known. Furthermore, Brexit negotiations are ongoing and there are still likely to be ups and downs in the GBP as these negotiations remain.

This should all result in a clear GBP sell? However, the one splinter in the eye of clear GBP downside is a last-minute Brexit deal.



The timescale for a deal to be arranged remains to be for the end of October, so we are getting on towards the steps of the court to make a deal. If there can be a breakthrough expect the GBP to surge higher as negotiations move on. As long as Brexit optimism remains the GBP finds buyers. If that optimism fades, then GBP sellers will jump in with both feet. Without for GBP volatility.

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Market Mood AUDNZD 30.09.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the AUDNZD pair on Youtube.



Weak NZD, Strong AUD

There remains a divergence in play between the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA).

The RBA has been shying away from negative interest rates and recently analysts have pushed back a potential further cut from October to November. The RBNZ on the other hand is still on course to use negative interest rates in 2021. At their last rate meeting, the RBNZ suggested that they could use their Funding for Lending Programme (FLP) as early as this year. This was a bearish step as this programme is a mechanism for providing cheap lending for businesses.

As long as this divergence remains between the RBA and the RBNZ, expect AUDNZD buyers from support.

Trade Risks:

1. Heavy equity selling will invalidate this outlook as the AUD tends to fall more heavily than the NZD in a risk-off environment.
2. Any Australia/China tension will invalidate the outlook.
3. Any change in central bank direction could invalidate this outlook.

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Some near term indicators for gold
by Giles Coghlan, Chief Currency Analyst, HYCM

Seasonal demand: India to support gold prices?

India is the world’s second-largest gold buyer and it will normally step up its gold purchases for Diwali. This year Diwali is around mid-November. If you look at the cumulative return by month over the last 10 years you can see that gold tends to gain in October. The chart below shows that January is very rarely a down month and October tends to end the month more positively than not too. The key reason for January’s gains is that China, the world’s largest gold buyer, increases their purchases in time for the lunar new year.


Real yields and gold prices move together

Another key indicator for gold is the fact that real yields and gold tend to move together. So, a helpful chart to be looking at is the real yields of 10 year US bonds with a gold chart. The real yield of a 10 year US bond is simply the value of the bond once inflation has been factored in. Real yields are currently negative at around -1.25%. This means that the yield of the bond is actually losing value! That is an incentive to hold gold over cash and over 10-year bonds for some investors. The relationship is very tight between real yields and gold prices and well worth being aware of.


However, one area to watch is that heavy equity selling can weaken gold. Also, the USD strength that accompanies equity selling is a headwind for gold. Essentially volatility at the moment is an enemy to gold moving higher. The main risk for further gold gains is a strong risk-off sentiment. As and if the market calms post US elections, expect gold to continue its rise as the fundamentals remain in place for gold with low-interest rates around the world. The main risk to this outlook would be a swift return to rising interest rates.

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Market Mood AUDJPY 02.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the AUDJPY pair on Youtube.


Weak AUD, Strong JPY

President Trump tests positive for COVID-19 and will now be in quarantine. With the House and the Senate seemingly unable to agree on fresh stimulus plans a deal between Nancy Pelosi and Donald Trump seemed to be the only way through.

The immediate reaction to the news is a weakness in the USD and strength in the JPY. With the chances of a US stimulus deal now less likely, it is reasonable to expect a slide in risk assets as equity futures markets sell-off.

In the FX spaces expect AUDJPY sellers at pullbacks as long as this mood remains.

Trade Risks: If there is good on the stimulus bill despite then that will invalidate this outlook.

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