Risk On Rally Stalls -Again; Euro to 1.10?

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Risk flows zig zag
EU rescue fund quells fears
Nikkei 1.49% Dax -0.40%
UST 10Y 0.705%
Oil $31/bbl
Gold $1735/oz
BTCUSD $9774

Asia and the EU
EUR EU ZEW 51 vs. 32

North America Open
No Data

After yesterday’s strong risk-on rally that saw equities commodities and high beta currencies all rise, today’s price action was decidedly more cautious as markets failed to have much follow-through.

Yesterday’s triple whammy of positive news that included the possible development of COVID vaccine, the prospect of a realistic EU rescue package, and the continued decline of fresh coronavirus cases in the OECD countries all combined for a strong push higher. Today however the markets are once again coming up against key resistance levels in equities with SP500 still having a hard time with the 3000 level and NDX unable to clear 9500.

Having rallied so far on nothing more than hope and easy money from the FED, markets may now need to see real economic and health improvements before they can rise higher. While COVID cases have fallen markedly the pathogen has not been wiped out and the threat of fresh hotspots and the resulting economic slowdowns could still derail this rebound rally.

Meanwhile, in FX land commdollar pairs continued to trade better, boosted by a rebound in commodity prices as Chinese industrial demand appeared to have inched closer to normal. Generally, all the G-11 pairs are all trading well against the buck with EURUSD now looking to run the key 1.1000 level after the Germans and the French put forth a proposal for 500B euro rescue package that was based on grants rather than loans.

The news instantly compressed the BTP yields to Bunds as investors felt a wave of relief that EU authorities are finally realizing the need for fiscal stimulus relief rather than simply more monetary debt obligation. The move has continued to boost the euro and the pair stands a good chance of testing the 1.1000 big figure as the week proceeds.

Boris Schlossberg
Managing Director

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