Each day and each week becomes a micro-analysis of the daily Covid 19 headlines. Headlines from the US tend to dominate but we would be foolish to ignore global developments. Moves in the US equity markets continue to dominate trader’s thoughts as the rally from the lows of a couple of months ago continues. The Nasdaq continues to make almost daily all-time highs with the quality of Amazon, Apple and Microsoft leading the way. Yet we see economic data especially around employment that continues to make even the most optimistic investor shudder. There is no doubt that markets have bought into the idea that this is a temporary blip on the radar, that a vaccine will become readily available to all and we will emerge stronger than ever. But what if? Call it denial, call it blind optimism, call it what you want. For now that’s off the agenda.

Friday would look like many recent trading days. Initial downward pressure on equities, specifically on the Dow Jones, would subside and a relentless rally would see us close a spread form the highs. Another all time high for the Nasdaq hits the record books. Gold would show some signs of weakness as traders’ question whether USD weakness will continue.  The yellow metal has become almost impervious to moves in equity markets. For FX it would be a day of consolidation. Initial USD weakness would partially reverse as the day progressed. By day’s end we would largely close mid range, most notably with EURUSD at 1.1300 and GBP at 1.2620. USDJPY would end at 106.90 and AUDUSD at 0.6948. As we head to a new week, traders are looking for FX to gain some independence and show less reliance on equity market moves. Can the recent USD weakness be reversed or is this just a pause in the trend? The week ahead is light on economic data with interest rate decisions in the Euro Zone and Canada taking center stage. US retail sales data on Friday will also be of great interest.

I very rarely look at long term charts, especially weekly ones. But today I will make an exception, purely as the XAUUSD trade has become so popular. As you can see we have to go back to 2012 since we last traded around 1,800 and to 2011 for the all time high close to 1,920. There is much debate around where we go form here. A new all time high fueled by record low global interest rates? Or a reversal as equity markets recover? Not a call I will make, but we are at some interesting levels. One to keep an eye on over the coming days.

David Hannigan

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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