Positive initial vaccine trials from the company Moderna boosted risk sentiment this week as the market became optimistic that COVID-19 could be restrained more quickly than anticipated. This resulted in strength across the commodity currency block in AUD, NZD, CAD, and weakness in the USD midweek. The key aspect to remember about our present financial crisis is that it is primarily a medical crisis rather than a financial one. This means that a medical solution can be the answer that the market needs to put in a swift recovery. Expect Moderna’s vaccine to be closely followed for further data releases going forward.

Key events from the past week

  • EURO: Franco-German proposal, Europe, Tues, May 19. The euro extended gains midweek boosted by a Franco-German proposal for a common fund that in-crease hopes of a European fiscal union. USD weakness on risk positive flows further boosted EURUSD demand midweek.
  • US-China: Trade war tensions return, All week. Tensions have returned between the US and China after the US Senate passed a bill potentially causing some Chinese companies to de-list from the US Stock exchanges. This caused some risk-off flows going into Thursday which supports the DXY above 99.00
  • Moderna Vaccine: Will it work? Note that vaccine hopes were questioned on Tuesday. STAT news reported that Moderna’s COVID-19 vaccine did not produce critical data to properly assess the vaccine. However, this news was shaken off by Wednesday as the market focused on the optimism of a promising vaccine.

Key events for the coming week

  • US-China: Further trade disputes, May 25. In a light data slate next week there is unlikely to be many market-moving economic releases. However, of much greater concern will be if the negative US-China trade rhetoric turns into more action. If this happens then risk sentiment could easily become negative again.
  • XAU/USD: Short term demand for gold to fall? With vaccine hopes gold’s surge higher was halted at $1750. If the positive sentiment continues next week will gold head back down towards support at $1725 or be able to keep grinding higher to $1800?
  • Coronavirus: Watch out for the latest virus news. Positive vaccine news from Moderna will continue to support risk, but keep aware that any negative news concerning the vaccine will result in risk-off markets returning.