So, a possible second wave is presenting itself in the US.

Texas, Florida and some smaller mid-west states are starting to see larger daily increases of COVID. This is interesting and a concern all in one shot as these states where the ones that opened early and with minimal public health policies to try and mitigate a second wave.

If we take Texas as the example, it allowed more rural counties (basically anywhere that wasn’t Houston or Dallas) to open about 3 weeks ago, so when you add in the mooted 14-day gestation period, its bang on timing when you trace it back.

Why this is a concern is that since these state have reopened other majors have as well, and some simple forward estimating suggest come the end of this week a possible second wave infections are due in the likes of New York State, California and Massachusetts, the big financial and service hubs of the US. The question the market is not waiting to find the answer too is: will the US shutdown again to combat a possible second wave? The President certainly doesn’t want too.

For the past 8 weeks, since the March low, risk has been on a tear, and in the case of the AUD/USD actually completely retracing its ‘shutdown’ collapse while EUR/USD and GBP/USD have been brought up on the optimism things may not be as bad as originally forecasted.

The caveat to the risk on trade we had always pointed to was a second wave and, the reaction in equities that a second wave is building should remind us that things are not only ‘toppy’ in risk but also ready to return to March volatility trading.

The DOW had its worst trading day since March 15 on Thursday, and lost over 8% in two days, the S&P and NASDAQ where not far behind it.

This brings us to the USD, DXY had been testing 100 as EUR/USD. USD/JPY and GBP/USD continued to move in risk on fashions. This test has been rejected technically in the interim but was also confirmed when the Federal Reserve showed it was more dovish than expected adding a fundamental support.

It noted that & [while] financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses” and followed that up with this on the COVID crisis & [COVID will] weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.

It then downgraded its economic forecasts for GDP with the Board now expecting US GDP to be between -7.6% and -5.5% in 2020. It stated it would maintain Bond purchases “at least at the current pace”, and discussions on yield curve control were continuing.

A clear slap of reality for markets and traders alike and a warning to all that we are no way near over this issue. If the second wave does become a reality March trends will become everyone’s trading playbook.