- Rising Covid-19 cases in Europe has dragged on risk sentiment and could continue to weigh on regional risk-sensitive assets.
- Widening Italian-German yield spread points to a potential persistent period of risk off coming.
- EUR/USD looks set to decline after breaking through the neckline of a bearish Head and Shoulders pattern.
Stock indices pushed higher in the Asian session on news that US Democrats are putting together a new $2.4 trillion stimulus bill in an attempt to break the impasse with Republicans. This boosted risk appetite. Australia’s ASX 200 rallied 1.28% and Japan’s Nikkei 225 climbed 0.58%.
The safe havens US Dollar and Japanese Yen fell versus their major peers. The risk sensitive Australian Dollar advanced after 5-straight losing sessions, for the first time since March.
Gold & US 10-year Treasury yields held steady, while silver slipped 0.2%.
Attention will turn to US durable goods orders (August) on an otherwise quiet economic calendar .
Covid-19 Fears Weighing on EUR/USD Rates
The renewed coronavirus restrictions in some European countries is threatening the regions fragile economic recovery and could result in a further selloff of riskier regional assets should the surge in Covid-19 cases continues.
New daily covid cases in France rose by a record 16,096 on Thursday. hospitals are also filling up with seriously ill Covid-19 patients in Madrid, Spain. It is looking increasingly likely that lockdown restrictions could tighten again soon..
High-frequency data reveals a slowdown the three mobility metrics – walking, driving and transit in Germany, Spain, Italy and France, indicating that residents are p scaling back daily activities amid a rising Covid-19 cases”.
Such a notable decline in mobility could hamper the economic recovery the eurozone from the March lows and could weigh on risk sentiment, particularly in light of the IHS Markit Eurozone Composite PMI for (September) revealing that the bloc saw its deepest service sector contraction since May.
The widening of the Italian government bonds and German bunds spread, often considered a risk gauge, appears to have coincided with the EUR/ USD move southwards and a rise in coronavirus cases.
local coronavirus developments could drive EUR/USD’s near term outlook and could see the pair extend current 3 week losses September 1’s yearly high..