The International Monetary Fund forecasts the strongest global growth since the 1970s in 2020. This should support markets like oil and equities over the coming months, but there are some risks factors out there that could ruin this scenario. Mainly the risks are linked to the more lethal and aggressive variants of Coronavirus in Brazil. Should these variants spread around the globe the projected growth numbers would have to be re-evaluated.   By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

BBC reports how Brazil has reached a grim milestone of 4000 Covid-related deaths per day and the expectation is that the number will be 5000 deaths per day as soon as next week. The new variant is more aggressive and lethal. According to a doctor, BBC News interviewed the variant kills more people under the of 40 than the original virus and is known to infect even people already vaccinated against the Covid-19. Should these variants spread around the globe and cause significant numbers of deaths among those not yet vaccinated and those that have had their vaccinations the economies would need to be shut down again. 

BBC quotes Dr Miguel Nicolelis, a doctor closely tracking the cases in Brazil, as saying “If Brazil is not under control, then the planet is not going to be safe, because we are brewing new variants every week… and they are going to cross borders”.

Italian newspaper La Republica reports that the European Medicines Agency (EMA) has said the blood clots and the Astra Zeneca vaccination are likely linked. This could cause more people to decline all types of vaccinations but especially the Astra Zeneca vaccination. This in turn would increase the likelihood of lethal variants outside Brazil. The slow pace of vaccinations has been cited as one of the factors in the high number of deaths and in the appearance of new variants in Brazil. 

This is definitely a topic we will be following closely over the coming weeks and months and will keep our readers updated on market reactions as we see them developing. The situation in Brazil has the potential to become something much bigger than it is at the moment. In order to stop the variants from spreading across borders, a global cooperative effort is needed to help the country in its vaccination program. However, president Bolsanaro’s refusal to accept the situation on the ground could make such cooperation difficult. 

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Today’s main risk event is the release of FOMC meeting minutes. They provide a detailed record of the discussions in the last FOMC meeting and often help traders to understand what the central bank’s plans for the economy are. For more details on macroeconomic releases see our economic calendar.

After our downside projection for EURUSD was reached we said in Monday’s report that a close above 1.1787 would allow a sustainable rally. As we can see the rally has been quite strong with the pair now trading 1.22% higher than at the time of our analysis. The market is now trading at a resistance (1.1882).  Failure to penetrate the resistance could create a retest of 1.1787 and a successful penetration could bring the next resistance into play. The next significant hurdle is the 23.6% Fibonacci retracement level at 1.1947 and after that, the resistance level at 1.1989 is likely to be a significant challenge for the bulls. The key price levels in EURUSD are 1.1603, 1.1704, 1.1787, 1.1947 and 1.1989.

USDCHF has broken the rising trendline and fallen through a support zone created by levels that were a resistance in March (0.9309 – 0.9325). The pair is getting oversold in terms of USDCHF and at a rising trendline (and SMA 30). USDCHFis also trading inside a range created above the 0.9213 level in March. This suggests that some profit taking by the dollar shorts could start to come in. If the rising trendline support is broken then the next significant support level is at 0.9213. Should there be a rally from the rising trendline the next major resistance at 0.9370 could be tested.

Recent macroeconomic data releases

  • US Average Hourly Earnings -0.1%, 0.1% expected
  • US Non-Farm Employment Change 916K, 652K expected
  • US Unemployment Rate 6.0%, 6.0% expected
  • US ISM Services PMI 63.7, 58.3 expected
  • RBA Cash Rate 0.10%, 0.10% expected

Important macroeconomic data releases today

  • Canadian Ivey PMI 62 expected
  • US Crude Oil Inventories -2.0M expected
  • US FOMC Meeting Minutes

For more details, see our economic calendar here.

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Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets.com

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