Forex Today: Vaccine hope, EU fund fuel rally, down the dollar amid US-Sino tensions ahead of Powell


Here is what you need to know on Tuesday, May 19:

The market mood remains upbeat after a risk rally on Monday, driven by hopes of a vaccine, a Franco-German fund plan, a bounce in Chinese oil usage, and the Fed's commitment to supporting the economy. Gold fell after shooting to the highest since 2012. Rising US-Sino tensions and testimony from Jerome Powell, Chairman of the Federal Reserve are eyed.

Vaccine? Moderna, a Massachusets-based pharmaceutical firm said its immunization candidate to COVID-19 showed promising results, as the eight people participating in the experiment produced antibodies. While this was only the first stage, hopes for a vaccine sent stocks rallying. A broad test begins in July. 

EU breakthrough: German Chancellor Angele Merkel and French President Emmanuel Macron announced an agreement on a €500 billion fund to boost the old continent's economy. The money will come through the EU budget and will include bond issuance by the European Commission – mutual debt yet via regular channels. The declaration sent Italian yields lower and the common currency higher.

Some countries wanted a largest sum, but the move towards mutualizing the debt is a breakthrough. It still needs approval by other countries, but Merkel's nod is a leap forward.

German ZEW Economic Sentiment for May is set to show a marginal increase from April's 25.2 points. Business confidence is critical to a comeback. 

Chinese V-shape? Investors also cheered news that Chinese oil consumption has almost fully recovered pre-crisis levels – 13 million barrels per day compared with 13.7 mbpd in December 2019. While some suspect Beijing's numbers and it is also due to higher usage of private vehicles, the black gold extended its rapid advance. 

More: S&P 500: Triple triumph thanks to Moderna, potential Chinese V-shaped recovery, softer US tone on China

Sino-American tensions: Deteriorating relations between the world's largest economy continue dominating the headlines. Both countries continue clashing around funding for the World Health Organization's funding, Huawei's operations, and coronavirus. However, White House Economic Adviser Kevin Hassett said that Beijing is adhering to the trade deal, a silver lining. China lashed against the US after the latter hit 90,000 coronavirus deaths.

Central bank commitment: The Federal Reserve released Chair Powell's remarks in testimony later today. He vowed to add stimulus as much as needed and pledged to leave interest rates low until America returns to full employment. His more positive take has also contributed to the upbeat market mood. 

Fiscal stimulus? Powell will testify alongside Treasury Secretary Steven Mnuchin, who expressed hope for a strong bounce in the second half of the year in his prepared remarks. The Democrats' new $3 trillion fiscal packages have been described by Republicans as "dead on arrival" but another form of federal relief is likely. 

Powell and Mnuchin begin testifying at 14:00 GMT and their answers to Senators' questions may move markets. Investors will eye comments on negative interest rates and further government funds. 

See Powell and Mnuchin in Congress: Praising programs and promising more

Trump said he is taking hydroxycholoriquine, an anti-malaria drug that has shown to have a potential for severe side-effects. Chinese critics called it "witchcraft." 

UK: GBP/USD has also recovered, with the pound shrugging off fraught Brexit talks and also the growing chances of negative interest rates. Silvana Tenreyro, an external member of the Bank of England's Monetary Policy Committee, said that the policy has been successful in the eurozone.

Britain's labor report is set to show a leap in the Claimant Count Change in April, reflecting the effect of a full month of lockdown. The Unemployment Rate and wage figures are for March, and investors will likely dismiss them.

See UK Jobs Preview: Claims calmed by the furlough scheme? Success can send sterling higher

The Australian dollar has been holding up, consolidating its gains from the risk-on move despite rising tensions with China. Beijing slapped an 80% tariff on Australian barley. NZD/USD is in a similar position after officials at the Reserve Bank of New Zealand said the kiwi's exchange rate is supporting exports.

Cryptocurrencies have corrected lower, with Bitcoin retreating toward $9,500. 

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

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