Forex Today: Play down Powell and risk-on, markets also ignore Sino-American tensions, gold shines

Here is what you need to know on Monday, May 18:

The market mood remains optimistic despite a stark warning from Jerome Powell, Chairman of the Federal Reserve, who warned that a full recovery may have to wait for a vaccine. Stocks and oil are on the rise and the US dollar is on the back foot.

Moreover, he said that it may take until late next year to recover and stressed that "we really do not know" and added that asset prices may decline. His 60 Minutes interview came after the US reported a sharp decline of 16.4% in retail sales in April, worse than expected. However, consumer confidence bounced in May.

More: US April Retail Sales: Is there a rebound ahead?

Sino-American relations: Peter Navarro, a senior White House adviser, and China hawk claimed that the world's second-largest economy sent infected people to spread the disease. American limits on Huawei are also in the mix. Hu Xijin, the nationalistic editor of the Global Times, tweeted that China needs to beef up its nuclear capacities amid threats from the US.

Gold is trading around $1,760, levels last seen in late 2012, and consolidating its gains. The precious metal is benefiting from central bank bond-buying schemes and falling yields.

See Gold Price Analysis: Symmetrical triangle breakout targets $1805 in the coming weeks

Japan has officially entered a recession with a drop of 0.9% in Gross Domestic Product in the first quarter, better than expected, yet on top of a downward revision to the fourth quarter of 2019. USD/J?JPY is stable above 107. 

EUR/USD is clinging to its range around 1.08 as large European countries continue gradually lifting restrictions. Over the weekend, Spain and Italy reported the lowest number of deaths since March. Germany also reported a substantial fall and stated that the Reproduction rate is just under 1. Phillip Lane, Chief Economist at the European Central Bank, reiterated that his institution is ready to add further stimulus. 

UK: A Bloomberg survey suggests that the Bank of England will likely increase its bond-buying program by around £100 billion in its upcoming meeting. Andy Haldane, Chief Economist at the BOE, did not rule out negative interest rates and other tools. GBP/USD has been consolidating its losses around 1.21.

Fraught Brexit negotiations sent sterling lower on Friday. Both the EU's Michel Barnier and the UK's David Frost acknowledged issues on the "level-playing field" topic. 

Vaccine efforts: Oxford University has advanced with its trials for immunization against the disease. GSK a large pharma firm has vowed to manufacture potential vaccines on a large scale and prioritize the UK in deliveries. 

WTI Oil has been extending its recovery, trading above $30. The increase in demand – albeit from a low point – and a drop in supply from the US and Saudi Arabia have pushed prices higher. The rollover of contracts may trigger choppy trading.

Cryptocurrencies have been on the rise with Bitcoin edging closer to the $10,000 mark. Ethereum and Ripple are also on the rise. 

More: Political economy in the age of Trump – A conversation between Barbara Rockefeller and Joseph Trevisani