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.