Market overview

Positive vaccine development but rising coronavirus numbers now

COVID-19 numbers have risen sharply in Europe and the US, leading to the imposition of new restrictions and partial lockdowns that are set to weigh on economic activity in the months to come. Recent Phase 3 vaccine trials are showing promising results and markets have now started to price out some of the tail risks of subdued activity long into 2021. Despite recent positive vaccine news, a full rollout of vaccine programmes is still some way off and current restrictions are set to weigh on demand in coming months. In our view, the coming months will be a balancing act between bad numbers on COVID-19 and growth and (one hopes) more positive news on vaccine trials.

Fading risks from US politics and EU budget, but Brexit still lurk

The outcome of the recent US election, with Joe Biden elected President and a Democratic House, has led political uncertainties about China, trade, the US's COVID-19 handling and so on to fade a bit but uncertainty remains about who will get the majority in the Senate. It all boils down to two special Senate run-offs in Georgia, due to take place on 5 January. With a current leaning towards a Republican majority, incoming president Joe Biden may see himself a lame duck with a divided Congress when taking office in January, limiting the hopes of large fiscal easing in 2021, big infrastructure plans, tax hikes and so on. There has been progress on the EU budget but there are still significant hurdles left for the recovery fund. Further discussion still looms on the terms and conditions of the recovery and resilience facility and the ratification in national parliaments could prove a hurdle, with Hungary already threatening to veto the package. Notable among the remaining uncertainties is the Brexit process, which has the potential to rock the boat around New Year. However, we expect a simple free-trade agreement within coming weeks.

Market relief from fading uncertainties

Market relief on the back of the US election led risky assets to perform and volatility to decrease notably. Recent positive COVID-19 vaccine news adds fuel to the fire, leading more classic sectors such as banks and industry (EU) to outperform growth sectors such as tech (US),but current negative COVID-19 pandemic developments cap the topside for now. EUR/USD has moved towards 1.19 on the back of the US election but grinded marginally lower again despite positive vaccine developments and sector rotation. A weakening USD and fading short-term uncertainty have been tailwinds to emerging market FX, Scandies and cyclicals lately but such FX moves may not extend without further direction set by monetary or fiscal policy and/or sustained signs of global economic recovery.

USD weak for now but remains long-term winner

We see EUR/USD around 1.20 in 3M but longer term we believe the USD will still be 'the winner' and we forecast 1.16 in 12M. We target EUR/SEK around 10.30 in 1-3M before a move towards 10.10 in 6-12M on recovery tailwinds. Meanwhile, we see EUR/NOK on a downward trajectory supported by the external environment and strong domestics and project 10.40 in 12M. We expect EUR/GBP to go towards 0.86 on a resolved Brexit near term.

Oil market can see light at the end of the tunnel

Positive news on the COVID-19 vaccine front has brightened the outlook for oil prices. However, on the way to a rollout of vaccines and full reopening of economies, the oil market is likely to see new lockdowns curbing demand and inventories are still elevated. In addition, eventual normalisation of OPEC+ production levels and slowly rising shale oil output are headwinds to the oil market too. Thus, we expect oil prices to stay range-bound for the rest of 2020 but on a slowly upward path over 2021.

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD stays depressed near 1.2050 amid firmer yields, ahead of Powell

EUR/USD remains on the backfoot around 1.2050, as the US dollar rises with Treasury yields. Concerns about the pace of the yield surge dent the risk appetite. Focus on EZ retail sales and US data ahead of Fed Chair Powell’s speech.


GBP/USD steadies around 1.3950 as bond bears catch a breather ahead of Powell

GBP/USD picks up bids around 1.3950 following a bounce from 1.3921. UK unilaterally extended NI border checks, EU vows legal response. US Treasury yields regain upside momentum, driving the US dollar higher. Fed’s Powell will be watched to confirm reflation fears.


Gold’s fate hinges on Treasury yields, Powell’s speech

Gold struggles with its rebound as DXY firms up with Treasury yields. XAU/USD reached fresh nine-month lows at $1702 amid a renewed uptick in the US Treasury yields, as the bond market turmoil resumed on Wednesday. 

Gold News

Dogecoin Price Forecast: DOGE’s 50% lift-off delayed due to lack of volatility

Dogecoin price broke out of a descending triangle pattern on March 1. Dogecoin price has been traversing the descending triangle formation for more than 20 days—however, the recent swing high lead to a bullish breakout. Now DOGE eyes a 50% upswing to $0.076.

Read more

DXY continues to gain on Wednesday, eyes 91.60

US dollar firm and approaching Feb 4th highs from a significant technical support structure. US economy moderately gathering pace according to the Fed's Beige Book.

US Dollar Index News

Forex Majors