The exuberance of an attempted renewal of the risk rally has begun to peter out as a second wave of COVID-19 infections is yet to be contained.
Newsflow surrounding additional measures put in place for Beijing to try and counter an emerging second wave of infections is beginning to weigh on sentiment once move. Schools shut, flights cancelled and now hotels shutting too are adding to a drip feed of concerning developments that have apparently previously not been factored into market pricing. Whilst this is not having a significant impact yet, it could develop into something more concerning if China extends its containment measures. Treasury yields have dropped back and there is a mild negative bias to major forex positioning. Equities are slipping back today too. Adding a degree of pressure to the downside bias on commodity currencies, the Australian unemployment data came in worse than expected overnight. The risk recovery has been built upon the massive support than major central banks (and governments) have provided.
Focus will turn to how supportive the Bank of England will be today. An extra £100bn of asset purchases are expected to be announced, but could the BoE be another bank that begins to steer towards negative rates? Sterling would certainly be under pressure if so.
It's extremely quiet and as a result I don’t have much to update. Australian employment came lower than expected so it’s worth another look at AUDUSD. If the flat interpretation is correct, then a lower high is in place at .6977 (and price shouldn’t move much above .6900). The ‘cleanest’ downside level is .6685-.6700. This has been a major level since July (almost a year), 2 equal legs down, and the 200 period midpoint on the 4 hour chart (magenta line).