Risk aversion has taken more of a grip on major markets in recent sessions as a drip feed of negative newsflow surrounding second wave infection rates of COVID-19 has increased.
Infection rates rising again in Japan, Australia and Germany are a concern, but alarming increases in the infection rate curves across several US states have made traders sit up and take note. The risk recovery from the pandemic cannot be a one way bet. The emergence of the US from economic shutdown will need to be re-calculated as several states reinstate elements of lockdown procedure. The weight of this on the risk recovery is growing. The decline of longer date Treasury yields (and curve flattening) is a signal for risk aversion and risk asset plays are increasingly struggling. Wall Street is faltering back towards testing key technical breakout support, whilst oil is also slipping as the prospects of demand recovery are scaled back. The interesting mover here is how the market views the US dollar. This morning the dollar pressured across major forex, whilst equities are struggling (a degree of catch up on Wall Street losses from Friday though).
A big retracement of the May euro rally has been undertaken in the past few weeks. This move has pulled Euro/Yen from 124.40 right back to the support of what is now a seven week uptrend (today around 120.00). The question is whether this is enough of an unwind to give the euro bulls another opportunity again. If this euro recovery story is to continue, the bulls will now begin to regain control. The unwind has been to 50% Fibonacci retracement (of the 114.41/124.42 bull run) where the bulls have found support at 119.30 and stabilised. The early signs of renewed buying last week breached a corrective downtrend, and although the bulls have been unable to so far gain traction, as long as HL remains in place we are buying.