Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

FX: Stimulus Talks, Brexit And New Global Virus Restrictions

By Kathy LienForexOct 12, 2020 20:44
FX: Stimulus Talks, Brexit And New Global Virus Restrictions
By Kathy Lien   |  Oct 12, 2020 20:44
Saved. See Saved Items.
This article has already been saved in your Saved Items

The most important drivers of forex flows this week will be stimulus talks, Brexit negotiations and new virus restrictions in Europe and Asia. Based on the continued gains in US stocks, equity traders are completely unfazed by the possibility of things going awry. Currency traders on the other hand are more skeptical with USD/JPY falling for the second consecutive trading day and high beta currencies like euro and the Australian dollar slipping lower. The losses are small which suggests that forex traders are still trying to decide if its wise to go against the move in stocks.

The primary reason why stocks are strong is because regardless of who wins the November 3rd election, investors expect a major stimulus package. Now, the sooner the House agrees to a deal, the more durable the equity market rally. President Trump hopes to boost his chance of reelection by providing stimulus quickly but according to House Speaker Nancy Pelosi, the White House’s latest proposal is “grossly inadequate.” So its highly unlikely there will be agreement on a big stimulus package before November 3rd but Treasury Secretary Mnuchin and White House Chief of Staff Meadows are hoping for a quick win with a vote to approve the use of untapped Paycheck Protection Program funds.

The unpredictability of stimulus headlines leaves data and Fed speak as the only scheduled catalysts. The US calendar is busy this week with inflation, retail sales, manufacturing data and the University of Michigan Consumer Sentiment report due for release. Federal Reserve Presidents are also expected to speak every day this week. Although wage growth slowed in the month of September, a further recovery in spending is expected. The same is likely for manufacturing but inflation will remain low. Consumer sentiment will be interesting because even though stocks rallied, confidence could take hit from the abysmal performance by both Presidential candidates at their first debate and Trump’s contraction of COVID-19.

Meanwhile the overall strength of sterling is impressive considering the looming Brexit deadline and rising virus cases. 
Prime Minister Johnson made it clear that he is ready to walk away if there is no agreement with the European Union by Thursday. The main issues are fishing rights and state aid. The EU wants the UK to follow its state aid rules and give their fishing fleets full access to UK waters. Extending the October 15th deadline is also an option but regardless of whether that happens if an agreement is not reached this week, sterling will crash lower. The economic outlook for the UK is grim. The government introduced a 3 tier lockdown plan that will weigh heavily on growth. The majority of England is at a medium level where groups are limited to 6 people and pubs and restaurants are forced to close at 10pm. A high level would restrict any mixing of households and a very high level would involve the closure of all pubs, bars and gyms. The city of Liverpool has been placed on very high alert.

Many Eurozone nations are in a similar boat with coronavirus cases surging across Europe.
 France reported nearly 27,000 new cases in one day this weekend. The continent is experiencing a full blown second wave and countries with cases far fewer than France, such as Germany and the Netherlands have announced restrictions. Spain declared a state of emergency in the Madrid region that would limit travel outside of Madrid and six other areas—there’s already a curfew in place for bars and restaurants. No matter how you look at it, the Eurozone economy will be hit hard by the second wave. National governments are reluctant to move back to full lockdown despite cases being much higher than March but local citizens may take matters into their own hands and stay home. The Australian and New Zealand dollars traded lower on Monday while the Canadian dollar rallied after last week’s better than expected labor market.

FX: Stimulus Talks, Brexit And New Global Virus Restrictions

Related Articles

FX: Stimulus Talks, Brexit And New Global Virus Restrictions

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email