At first, it may seem like volatility risk was avoided in financial markets. After the worst week on Wall Street since March, the past 5 days saw equities eke out slight gains. Yet, foreign exchange markets showed dynamics of risk aversion. The anti-risk US Dollar and Japanese Yen rose. This is as the growth-oriented Australian Dollar fell. Gold prices remained in range-bound trade.
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After a rosy start, the S&P 500, Dow Jones and Nasdaq Composite struggled to find follow-through. In the background, there seem to be rising fears of a second wave of the coronavirus. New hotspots emerged in Beijing. In the US, states like California, Florida and Texas reported record single-day rises in Covid-19. Meanwhile, the Fed’s balance sheet shrank the most this year.
Rising cases may pressure local government officials to pause or unwind lockdown easing measures. As markets are forward looking, this could offset further rosy surprises in economic data from the world’s largest economy. Traders will be awaiting US durable goods orders, Markit PMIs (manufacturing & services), personal spending and University of Michigan Sentiment.
The Reserve Bank of New Zealand and Banco de Mexico (Banxico) have interest rate decisions ahead. Investors will be eyeing their economic assessments. The International Monetary Fund (IMF) will also update its 2020 outlook. Further grim projections could derail risk appetite further. What else is in store for financial markets in the week ahead?
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Fears of a second wave of coronavirus infections as countries ease their lockdown measures will likely keep investors cautious in the week ahead, damaging sentiment towards currencies such as the Euro.
AUD may come under pressure in the week ahead as fear of a second-wave of Covid-19 rattles financial markets amid growing China-Australia geopolitical tensions.
Gold prices have been struggling to find direction – why? Will a shockwave that sinks the Dow Jones and S&P 500 make itself known? That is a key risk for XAU/USD.
The US Dollar may continue its recent recovery as the Federal Reserve’s balance sheet contracts $74 billion in the week ending June 17.
As markets continue to monitor Covid-19 cases, the Mexican Peso is able to contain some of the losses
Stocks have stalled near their recent peaks as market participants wrestle with accommodative monetary policy and the threat of a second coronavirus wave. Can stocks continue higher?
The technical outlook for gold brings the monthly high ($1746) on the radar as the pullback from the yearly high ($1765) reverses ahead of the May low ($1670).
After drifting lower throughout the week, Sterling’s falls accelerated on Friday, with the sell-off being further fueled by news that UK debt to GDP surged to its highest level since 1963.
The Japanese yen continues to go nowhere versus the Dollar, but vs Sterling it is around a potentially big spot on the charts.
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US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD