Indices are caught between the threat of surging cases (and deaths) prompting new lockdowns in the US (a risk-off event but positive for stay-at-home NASDAQ), and on the cusp of more vaccine breakthroughs (positive for indices and negative for stay-at-home NASDAQ), says Adam Button of ForexLive.com.
After Wednesday's closing bell, Moderna (MRNA) said its vaccine trial got enough infections to allow for a preliminary analysis of the vaccine effectiveness to begin broader analysis. Is oil showing a gravestone doji daily candle? Does gold show vulnerability at the 1850 support? Will the SPX Volatility Index (VIX) bounce off the right-shoulder support from 23.40s? Below is a sample of Wednesday's trades to the WhatsApp Broadcast Group.
Bonds & Indices
We continue to watch 1.00% in the US 10-year yield and how market behaves if/when it breaks. Will a breakout reflect outright risk-on surge and optimism to the extent of boosting the reflation trade (USD-negative), or would it pose a threat to the increasingly low-rates-dependent players and the borrowing-addicted US government until it whipsaws lower?
Outside of that, the mode in markets continues to be selling the US dollar even with Treasury yields rising. There is a mountain of money parked in the US bond market that's waiting for the right time to dip into foreign investments, particularly emerging markets. News of a vaccine that could potentially eradicate the virus may be that trigger but it's competing with rising cases in the interim.
GBP and Brexit
Just 24 hours ago it seemed like crunch time in Brexit talks as EU and UK announced a rapprochement in negotiations, prompting GBP spikes across the board, which was furthered by the vaccine news—a development considered by FX to be widely positive for global growth and negative for USD and JPY against the rest. As cable hit the 1.3290s, we were reminded that the pair never dipped below 1.40 for decades before Brexit.
At present, the contours of the new deal don't appear to be onerous and combined with Sunak's willingness to spend, leave the UK in a solid position once Brexit and the pandemic are sorted.
Learn more about Adam Button by visiting ForexLive.com.
