Risk On Amid Vaccine Hopes, Powell's Optimism, EU Reconstruction Fund
Fiona Cincotta May 19, 2020 2:43 AM
Stars are aligning for risk sentiment
Vaccine hopes, positive comments from Fed Chair Powell, continued optimism surrounding the reopening of economies and the agreement between France and Germany on an EU reconstruction fund and it appears that the stars are aligning for risk sentiment. Markets surged higher on Monday and look to extend that rally today.
However, the big shot in the arm for risk sentiment came from results from coronavirus vaccine test from Moderna Inc. The US biotechnology firm reported that small sample, first stage human tests showed early signs of viral immune response. Even if the vaccine shows efficacy of 60 – 70% it could be useful in stopping the replication of the virus. A vaccine would provide the quickest path back to pre-coronavirus normality and an economic recovery. A broader trial is due to start in July. Needless to it will be watched very closely. Shares in Moderna closed 20% higher giving it a value of $30 billion. Airline and travel stocks have soared on the news.
A breakthrough in Europe has added to the upbeat mood in the market. Germany and France agreed a €500 billion recovery fund to boost the continents economy and combat the economic impact of the pandemic. The fund would see European Union budget used to offer grants to those EU countries and sectors hardest hit by the coronavirus crisis. This is a huge step forward as it is the first time that the two countries had proposed that the EU raise debt jointly. Most certainly a case of better late than never. EUR/USD jumped 0.87% on a mixture of Euro strength and Dollar weakness in the previous session, closing above $1.09 and is maintaining those gains in early trade today.
UK Jobless claims soar - GBP jumps
GBP/USD has advanced in early trade, jumping above $1.22 on upbeat sentiment, a surprise drop in the unemployment rate and despite a surge in jobless claims. Unemployment in the three months to March ticked lower to 3.9%, from 4%. Meanwhile jobless claims surged 856.5k vs 150k expected. To put this into context at the peak of the financial crisis jobless claims hit a high of 136,000.
The surge in people submitting benefit claims last month come as the virus took its toll on jobs and despite the government’s job retention scheme. This figure is going to get worse before it gets better.
Gains in sterling could be capped by rising expectations that one day the BoE will use negative interest rates as a monetary policy tool.
FTSE Levels to watch:
Yesterday's rally saw the FTSE push back over its trend line support turned resistance. The uptrend remains in tact. Immediate resistance can be seen at 6122 (today's high) and 6210 (high 30th April). Immediate support can be seen at 6032 (today's low) prior to 6000 (trend line & psychological level) and 5650 (low 14th May)
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.