Vaccine hopes reignite risk rally (Daily analysis 10.11.2020)

The post-election risk rally was additionally boosted on Monday as Pfizer and BioNTech released a study pointing to a 90% efficacy of the vaccine. Equities rose sharply, crude oil skyrocketed, and precious metals plunged.

On Monday, Pfizer and BioNTech published interim results of the phase 3 trial of their vaccine. The study indicates that efficacy exceeds 90%. This is much higher than the markets have hoped. One must remember that the vaccine requires official approval to be produced and then distributed.

This week the US dollar is stable and tries to pare some losses, primarily against low yielding and safe haven currencies. The USD/JPY pair enjoys the ride to 105.00 mark as equity markets skyrocket. The recent EUR/USD pair's upswing faded in the 1.19 area, and the currency pair turned lower to trade comfortably in the middle of a familiar range. The cable (the GBP/USD) appreciates and given the ongoing EU - UK trade talks, further gains are likely. Only the commodity block holds firm with the Norwegian krone remaining the clear outperformer due to a sharp rise in crude oil prices. In November, the EUR/NOK exchange rate has so far tumbled 4% as WTI crude regained the 40.00 USD/bbl mark.

EM currencies enjoying a wild ride

The USD/TRY depreciated by approx. 4% on Monday and the lira enjoyed the best day in two years. A sharp decline was triggered not only by a risk rally (TRY has recently failed miserably in benefiting from global risk appetite) but predominantly due to a weekend overhaul conducted by President Tayyip Erdogan. New central bank governor was appointed, and the Treasury and Finance minister resigned. Normally, it would trigger a sell-off because such a shocking move would be perceived as an attack on the monetary authorities independence.

However, in the case of Turkey, the institutional order was destroyed years ago, and personal changes are seen as a chance to stabilize the lira. The USD/TRY pair enjoyed only a brief period of strength and turned sharply lower on Tuesday morning. Other major emerging markets currencies continue to trade strong. The CEE trio has erased October's weakness. The EUR/CZK pair has dropped 3% since the beginning of the month, and Czechia is cited as a country which succeeded in reducing the number of new COVID-19 cases. The zloty rallied in line with other EM peers, and it seems that for now high coronavirus numbers and street protests have lost the role of market drivers. Regardless, the further upside for the zloty, the forint and the krona looks limited for now.

Conotoxia research team