Trading currencies trend forecast: The thrust for hope drives a dive into risk

Risk appetite is starting to surge as markets jump at the slightest glimmers of hope. News that the US biomedical firm Moderna has created an immune-system response to fend off Covid-19 from its experimental vaccine was met with ‘absolute glee' by the markets and FX. Moderna CEO's quote of "this is a very good sign that we make an antibody that can stop the virus from replicating" sent Moderna's share price to the moon.

However, the results are from a tiny first stage trial and was done with volunteers rather than random sampling, therefore it couldn't have sampling effects and have the result skewed. The company is moving ahead with plans for larger testing, but this didn't stop critics from pointing out that the results could be outliers and that it may not actually see an immune response to actually fend off the disease.

The market fluctuations from both pieces of news were plain to see; WTI light crude hit a 2-month high and is now up over 130% since April 22 as the optimism surrounding the Moderna COVID drug trials spilt into global risk sentiment and oil demand starts to return. This risk sentiment has also spread into FX with USD, JPY and CHF getting shed and did not bounce back when critics hit out at the study. In fact, in the G10, JPY and USD are now the bottom 2 performing currencies this week.

Currency Moves

EUR/USD finally broke through $1.09 and will be looking to test the top of the April peak of around $1.10 if risk sentiment remains.

GBP/USD had been battling for which was the weaker partner in the pair but with GBP's risk profile, it lost this battle and saw Cable adding over 0.6% to $1.22. The caveat here is the Bank of England which, getting ever closer to negative rates, will likely see Cable at $1.20 rather than $1.24 if all things remain the same.

Then there are the commodity currencies AUD, NZD and CAD.

CAD has been surging over the past week as oil continues to recover. NZD/USD is back above $0.60 and looking to test $0.61.

The AUD/USD made a 7-week high on the risk sentiment but also on the surge in iron ore which breached US$100 a tonne for the first time in years. AUD/USD touched $0.658 before easing on questions around Moderna. But at $0.6555, it shows the risk is on.