Lack of clarity regarding the macroeconomic picture for the U.S. is
making the long-term direction of markets more challenging to predict. The
unprecedented amount of effort being put into research for coronavirus
treatments is providing some hope for risk sentiment in the Forex markets.
However, U.S. economic data has been mixed while the Trump administration’s
resistance to taking Covid-19 seriously is dampening risk-on sentiment and
continuing to isolate the U.S. from the rest of the world.
The race towards Covid-19
treatments provide hope
One of the unknown factors which can have huge ramifications on the
market is if and when an effective coronavirus vaccine will be available for
widespread use by the public worldwide. On the heels of news of Pfizer and
BioNTech achieving Food and Drug Administration (FDA) fast-track status for two
coronavirus vaccines, University of Oxford has just reported promising
results for recent trials of its own vaccine. Breakthroughs in Covid-19
treatments are providing strength in risk-on sentiment which can be bearish for
safe-haven assets, such as the U.S. dollar and Japanese yen.
On the other hand, the future prospects of effective vaccines is far from
guaranteed. There is always the chance that promising treatments could
ultimately not be deemed viable for public use. However, regardless of a
risk-on or risk-off mood in the market there will also be opportunities to make
profit in the currency markets. Forex traders who have registered with a
reputable currency broker will be able to take advantage of any future market fluctuations.
Mixed picture in U.S.
The situation in the U.S. is challenging to interpret with various
positive and negative factors contributing to the forecast for the future. The
macroeconomic data has been mixed with strong housing data as well as weak
consumer sentiment. Housing starts increased in June by 17.3% which is the highest it has been since March. On the
other hand, the University of Michigan’s index of consumer sentiment dropped to near its April low with a reading
of 73.2. Although it seems that homebuilders are beginning to feel more
confident, it is becoming increasingly more doubtful that consumer strength
will be able to keep the housing market afloat.
In situations like this where it is unclear which way the broader
economic direction is headed it may be best to concentrate more on the
short-term trading opportunities which may provide more profitable setups. As
long as you have a trustworthy broker with a solid trading platform, you should be able to identify many
short-term investment opportunities in the Forex markets. If you have not yet,
register for a trading account now.
Trump response to Covid-19
confusing, lacks commitment
To add to the lack of clarity, the Trump administration’s response to the
pandemic has ranged from denying its seriousness to finally wearing a mask in
public. At the same time, President Trump has consistently argued for less
testing while at the same time pressuring schools to reopen live classroom
instruction. These actions leave the market doubting that the U.S. will
eventually be able to gain control over the spread of the virus in the way many
other countries have been able to do.
U.S. increasingly isolated due
to Covid-19, US dollar at risk
Not only has the poor response to Covid-19 by the U.S. government cost
tens of thousands of lives and put many more in danger, it has also resulted in
the U.S. becoming more isolated from the rest of the International community.
At least 33 countries have instituted bans on incoming travelers
from the U.S. due to the American government’s poor response. So far, negative
news surrounding coronavirus has been bullish for the US dollar due to its
safe-haven status. However, if the market begins to view the pandemic and its
economic fallout as a more uniquely American issue, USD could experience
significant downward pressure.
Therefore, Forex traders should pay close attention to reactions in
the US dollar index following negative news regarding Covid-19. If you can see
the reversal of the US dollar’s safe-haven status, you will stand to
potentially earn significant profit from shorting USD. However, even if USD
continues to maintain its safe-haven status, Forex traders can still just as
easily go long USD and make profit from market moves. With a good broker providing a user-friendly trading platform, you should be able to make
money in the currency markets no matter which direction sentiment moves.
