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Two big risk-on events this week have put a rocket under risk markets.

1.      President-Elect Joe Biden declaring victory but with possible checks and balances from a Republican Senate, a win-win according to the market.

2.      A COVID-19 vaccine from Pfizer and BioNTech providing very promising results from stage 3 trails.

The surge in risk buying has been going on now since Biden’s lead in major swing states took over (late last Wednesday night). The news that the stage 3 Pfizer/BioNTech trials prevented more than 90% of symptomatic Covid-19 infections in over 40,000 volunteers is not only the most encouraging scientific advance to date, but it’s a sign that 2021 will likely be very different to 2020.

Risk FX initially took all of this as a signal to ‘turn on’ however as time progressed, it was also clear that risk has a dilemma. These positive external factors are over 6 months away from taking effect and possibly 9 months in respect to the COVID-19 vaccine reaching full herd-immunity.

There are some short-term risks that need to be considered.

Second and third waves in the northern hemisphere are reaching new record infection levels, the impact on consumption and confidence will be huge. It may explain why EUR/USD has been patchy even after reaching a 2-month high.

The pair clearly hit a resistance and that looks to be an issue for it going into the long winter months of the Northern Hemisphere. It is not helped by the knock-on from surging US yields.

The other issue is Brexit, the 31 of December is looming large, Westminster is far from united and the EU is running out of patience this could make the end of the year very tricky for the GBP. It is one risk to watch.

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