US pandemic situation in the limelight (Daily analysis 19.11.2020)

Fluctuations on the market continue as risk currencies and assets need fresh headlines pointing to further vaccine progress to trend higher. A string of promising developments was continued as Pfizer announced on Wednesday that it will be ready to apply for official authorization within days, but bounces have become weaker and harder to sustain.

On Thursday, the US dollar appreciates against all major peers. Equities and commodities decline. Emerging markets underperform as markets try to find a balance between positive long-term implications of vaccine progress and negative news on the COVID-19 pandemic developments.

Bad news follows good news

Pfizer will be ready to apply for official authorization of its vaccine within days. What is more, AstraZeneca informed that the initial results of the final stage of clinical tests will be published within days or weeks. An initial positive reaction is being retracted after New York City announced plans to close down schools as a consequence of the increasing number of new cases. In the United States, the number of COVID-related deaths exceeded 250 thousand and yesterday new cases amounted to almost 174 thousand. Moreover, the high number of infections in Japan and South Korea becomes a burden for Asian risky assets.

A risk rout begins

As a consequence of mounting COVID-19 fears, the US dollar recovers and retraces some of the recent losses. The USD/JPY pair edges higher to trade around 104.00, but the further upside is limited due to a complicated epidemic situation and the yen’s safe haven status. The most risky developed markets currencies take a breather after an impressive rally. The AUD, NZD, NOK and SEK all turn sharply and decline by 0.5% or more. Given the fact they have been outperforming recently and entered the overbought territory, there is a room for more corrective weakness. Even if new vaccine headlines pop up, it may not be enough to provide a lasting boost as investors become more and more immune to positive announcements. The GBP/USD pair tumbles towards 1.32 mark as the lack of clear progress in the EU – UK talks leaves the sterling vulnerable to the shift in appetite for risk.

The EUR/USD pair turns within a range

The main currency pair goes lower towards the middle of a recent 1.1750-1.1900 short term range. The European Central Bank downplays the impact of the progress on the vaccine front. It reiterates a need for further easing of monetary stance, which might be even more required as the European Union’s recovery fund and ratification of the 2021 - 2027 budget is being blocked by Poland and Hungary. Christine Lagarde, the President of ECB, failed to deliver any details to manage market expectations and prevent market participants from pricing-in an extremely aggressive easing package, which the ECB will deliver in December.

Conotoxia research team