Asia Open FX & Gold: FX joins equity and credit markets in expressing more positive risk sentiment

Asia FX and Gold early morning views

The upward momentum in risk appetite continues unabated as the markets focus on abundant liquidity and hopes for an economic upswing. The liquidity angle isn’t a new development as central banks and governments have been laying it on thick, but with economies emerging from lockdown it seems markets are increasingly confident the WWII-sized stimulus that’s already been injected into the economy will find its way into every liquid asset imaginable, and that’s providing the massive reopening tailwind.

Currency Markets 

FX is joining equity and credit markets in expressing more positive risk sentiment by selling the US dollar as confidence for a speeding up in economic activity outside the US is surging in line with more significant policy stimulus.

The Euro 

EUR continues to push higher, dauntless by data showing a rapidly contracting economy. The EUR rally has been built on the prospect of policy support and the EU’s plan for a recovery fund. But the headline below just about sums it up as there’s impressive momentum behind the single currency across the board today. 

Given the volumes going through on EURUSD, macro accounts have likely flipped from short into long – and the same for CTAs – while real money was starting to shift last week on signs of the EU debt monetization deal. But, in the short term, we’ve come a long way and at some point ahead of the ECB meeting on Thursday there might be an increased risk of profit-taking, which might offer a good entry point for those who missed the rally to get in. 

The British Pound 

GBP-USD remains close to recent highs, content, for now, to shrug off a growing focus on Brexit risks. 

The Australian Dollar 

US-China tensions appear not to be worrying investors, who are instead focusing on the lifting of stay-at-home restrictions. That’s seen the Aussie dollar hold on to the bulk of its recent gains overnight while getting buttressed by the strong showing in US equity markets overnight. 

The Malaysian Ringgit 

The Ringgit surged on expectations that OPEC+ would reach a confidential agreement to extend production cuts, and despite meeting lower end of market expectations, oil traders are not concerned that US shale producers could turn on the taps quicker than expected. So lower oil prices in the wake of the markets’ nervous speculation could curb the Ringgit’s rally for now. 

Gold Markets 

Goldis still struggling, probably more on the back of the continued risk-on mood in equities than anything else. And the consensus is finding it difficult to be too bullish on the yellow metal at the moment with equity market soaring higher by the day.