The 2 major risk events of the past 9 months continue to be the key drivers of FX risk trading.
1. Caseloads of COVID-19 and a possible vaccine to it.
2. The US presidential election.
The second point has now officially been ‘declared’ with President Trump finally allowing a transition process to President-Elect Biden to begin. This was probably seen as an ‘unexpected’ outcome considering the Trump team is still pursuing legal challenges in several of the swing states yet to official declare.
However, with Georgia officials declaring this week if there will be any legal challenge remaining, that could, in theory, be successful in the remaining states. Yet, it would still not be enough to get Trump to 270 electoral colleague votes that are needed to be re-elected. This ‘risk event’ is now officially over. However, the Trump presidency is not – that is still official until January 19 and there are still some risks here.
The reaction to Trump’s concession was one of risk-on, the equity market made record highs in the US and the USD fell against all G10 currencies on the news, with risk currencies in the form of the AUD, NOK and SEK being the biggest movers.
AUD/USD is again through $0.73, the question for it over the final week of 2020 is will the risk levers continue to push it higher? And, will that mean a year-end target of $0.75 is still possible? The macrothematics suggest yes, but real events could still be a headwind.
Namely COVID-19 cases.
That first point is really the major catalyst now for further risk rallies or pull backs, and as discussed in last week’s note caseloads are still growing almost exponentially in the US and Europe, which is weighing on short-term confidence.
Case-in-point: the US consumer confidence fell to back into pessimism in November to 96.1 from 101.4 (100 is equilibrium). Future expectations deteriorated (fell to 89.5 from 98.2) specifically due to a resurgence in COVID cases and the subsequent restrictions. The Richmond Fed manufacturing survey for November fell more than expected, to 15 versus estimates of 20 and well down on last month’s record high of 29, most components slipped and the most notable was new orders down to 12 from 32.
This must be seen as a short-term risk for FX. Watch for possible switching to the JPY and CHF as traders cover possible volatility to end the year.
This information has been prepared by Mitrade. In addition to the disclaimer below, Mitrade does not represent that the information provided here is accurate, current or complete, and therefore should not be relied upon as such. This information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Mitrade is not a financial advisor and all services are provided on an execution only basis. We advise any readers of this content to seek their own advice. Reproduction or redistribution of this information is not permitted.
Derivatives trading involves risks and the above information is not suitable for everyone. Refer to our PDS and ensure you understand the risks involved.
The content presented above, whether from a third party or not, is considered as general advice only. This article does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Mitrade does not represent that the information provided here is accurate, current or complete. For any information related to leverage or promotions, certain details may outdated so please refer to our trading platform for the latest details. Mitrade is not a financial advisor and all services are provided on an execution only basis. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. *CFD trading carries a high level of risk and is not suitable for all investors. Please read the PDS before choosing to start trading.