Risk On Amid Vaccine Hopes, Powell's Optimism, EU Reconstruction Fund
Fiona Cincotta May 19, 2020 7:43 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: GAIN Capital UK Limited (trading as "Forex.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, Forex.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by Forex.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although Forex.com is not specifically prevented from dealing before providing this material, Forex.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
For further details see our full non-independent research disclaimer and quarterly summary.