[VIDEO] Currency point: To risk or not to risk

XAU/USD trading movements compared to that of fiat currencies is an illustration of the theme that is post-COVID trading: what is ‘risk’? It varies wildly and glass half full to glass half empty position is clearly in ‘the eye of the trader’.

Take Fed Chair Powell’s testimony to the Senate last: 

‘While this bounce back in economic activity is welcome reflecting a resumption in activity, it also presents new challenges’…’[It’s] extraordinarily uncertain and will depend in large part on our success in containing the virus,’ 

His views further illustrated here: ‘a full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities.’ 

And finished his testimony with the Fed’s consistent position: ‘[We are] committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible.’

He has a glass half empty view and that is not surprising as the US registers 52,000 new COVID cases in a single day on 3 July, Texas and Florida are now in full reverse with their reopening programs and Arizona and Nevada are likely to follow suit this week. 

A ‘derailment’ of the recovery is likely. It certainly feeds into XAU/USD movements towards and test of US$1800oz, it has backed away from this level in recent days but it clearly wants to go through US$1800oz as cases build.

But the glass half full view continue to be backed in fiat currencies by the May and June economic recovery data. 

As the 4th of July falls on a Saturday this year the Non-Farm Payrolls (NFP) where release on Thursday not the traditional first Friday of the month as the public holiday was brought forward to include the Friday 3 July. 

The NFP was ‘strong’ to say the least, 4.8 million Americans were back into the workforce in June. It was a huge beat on the expected 3.2 million but is still miles off picking up the slack with 14.7 million still out of work from the read in February. The unemployment rate fell to 11.1% from the May high of 13.3%, participation rose to 61.5% from 60.8% but average weekly hours fell to 34.5 in June from 34.7 in May. 

US initial jobless claims fell to 1.43m from 1.48m last week, with continuing claims at now at 19.3 million. 

The data is positive what every way you cut it. But again, what July looks like with the rising infection rate is anyone’s guess. 

The US data was met with risk buying. 

AUD/USD rebounded to be back in the $0.69 handle despite the reintroduced lockdowns in the state of Victoria. With RBA meetings now a complete non-event having fired all ammo it had in March, this week the pair may tread water as it watches for next week’s Australian employment data to get a possible further read on the direction.

EUR/USD is flirting with the upper levels of $1.12 on the better economic data but as we saw in April/May trading the fluctuations are stronger than its AUD/USD peer and direction is not as easy to derivate. 

The JPY is also starting to lose the ground it made in June on risk currencies seeing USD/JPY testing ¥108 for the first time in 3 weeks.