Shares consolidated last Thursday on the Forex market as the avalanche of negative stock results was overshadowed by reports that U.S. regulators will ease the Volcker rule and allow banks to increase their investments in venture capital funds and to free up capital. Risk aversion is in full swing on the forex market, as currencies extended their fall on Thursday after the United States reported the largest increase in COVID-19 cases ever.
Despite the Trump administration’s attempt to minimize the risk of a second wave, the numbers tell a different story. New cases of the virus in the three most populous U.S. states have peaked this week and, although the number of deaths remains low, it is still too early to take stock.
Even if politicians try to deny it, the curve is rapidly moving in the wrong direction. The president and the governors who precipitated the reopening do not want to reverse the process, but the Americans themselves can choose to strengthen their quarantine measures. Restaurant reservations in California, Texas, Georgia, and Florida have plunged in the wake of recent news, and we expect more activities to follow.
The United States is not the only country to report an increase in the number of cases (although its trend is among the worst). Australia registered its most significant increase in one day in two months, which led to the rapid deployment of mobile screening centers.
That said, they only registered an increase of 33 cases, up from 37,000 in the United States on Wednesday. So while White House adviser Larry Kudlow said he still sees a V-shaped recovery, investors need to be more careful. Data for April and May will be good, but the improvements will begin to fade in June.
Forex Currency Pairs Overview
When it comes to Forex pairs, the greenback found itself in a safe haven, which allowed it to extend its gains against the euro (EUR / USD), the Japanese yen and the Swiss franc. The resistance of the USD / JPY has left everyone amazed so far. Treasury yields have plummeted. Still, investors are snatching up U.S. dollars because Trump might discover that the only way to reinvigorate his supporters is to criticize other countries and hype protectionism by threatening new tariffs.
We are already witnessing this with targeted warnings on Canada, the E.U., and the United Kingdom. Ultimately, we don’t think the USD / JPY can withstand broader risk aversion forces and that it will soon return below 107.
EUR / USD fell more than GBP / USD despite a further improvement in Germany’s GfK consumer confidence index and a weaker than expected improvement in the UK CBI retail sales report.
In addition to the U.S. price threat to the E.U., the ECB’s report also suggested yesterday that there is no way out of quantitative easing in the near future. Policymakers are seeing weakening price pressures, downside risks to growth, and weak demand. Consequently, all the scenarios could prove to be too optimistic for the last part of the projection horizon. The recovery is surrounded by exceptional uncertainty.
Like every Thursday, the figures from the United States Department of Labor were eagerly awaited. They were disappointed for the 3rd consecutive week with 1,480,000 new registered unemployment benefits last week, compared to 1,540,000 the previous week (or + 32,000 compared to the initial estimate).