Last week, dollar ended its best run since April as pressure builds from Covid-19 resurgence and the upcoming US presidential election. The greenback remains under pressure early on Tuesday as it lacked the momentum to push above a critical resistance zone.

Covid-19 Second Wave

Covid-19 second wave remains a major risk concern as deaths globally hit above 1 million with roughly half of that recorded in the US, India, Brazil and Mexico. The markets are now at a crossroad – is the recent impact big enough to force another lockdown and will the Central Banks support further? On the other hand, the market is reacting quite gently with the recent impact. It’s believed that the worst has come and gone. Hopes are high concerning vaccines and with schools, businesses and airports re-opened, global leaders hope the second wave can be contained. Although economic recoveries are expected to slow down a bit, the big banks remain calm before playing the next card in their pack. Investors and traders are watching quite closely.

ECB is not bothered about the Euro

The Euro has gained heavily against its counterpart since February/March. However, investors are concerned about the ECB tampering with this run. A too strong Euro is not good to EU exporters. Many of the economies in the EU depend much on their exports and an excessively strong EUR might hamper their competitive edge against their US and Asian competitors at the international market. In the last ECB monetary policy meeting, President Lagarde expressed that the strength of the Euro is not yet in their policy agenda although they are keeping a close eye on the exchange rates which can directly have an impact on inflation. This was reiterated yesterday at an ECB event. It now remains to be seen if the soft tone will be maintained during the next policy meeting as restrictions are being re-enforced in some part of Europe due to Covid-19 second wave. The Euro continued last week recovery as the dollar plunges further.

USD plunges as Stock markets recover

Dollar maintains its inverse correlation with the stock market since March as a result of the Fed weakening the former to support the economy. With reports of the second wave of Covid-19, investors booked profits on stocks in September while bids for the greenback surged. In more than three weeks in September, the USD gained over 3% against its peers as the the S&P 500 plunged nearly 11%, NASDAQ down by 14% and Dow nearly 10% down. However, since last Friday, the US stock market has recovered up to 30-40% of the September declines while the Dollar has shed 0.6%.

Commodities react to Covid-19

The commodities market have had a big share of market volatility in September. Gold started the month at $1,990 per ounce but now at $1,880 after hitting the $1,849 low. Currently eyeing the $1,900-$1,906 resistance zone, the metal should recover a significant part of the September decline especially of the stock markets relaxes the current recovery. On the other hand, the Oil markets have had mixed reactions in September. Starting at $41, WTI declined to $36 just about the first week of the month. However, a quick bounce surfaced and Crude oil prices are now around the September opening prices. With short-term risk-off returning, Oil prices might remain under pressure this week.

Economic data: NFP is coming

By far, the biggest economic data this week is the US employment data due to be released on Friday. The new NFP data is expected at 900k, far less than the previous release but the unemployment rate is expected to be better than the previous. The expected slowdown in NFP is largely as a result of Covid resurgence in some parts of the US. Before the NFP on Friday, manufacturing PMI data in many of the major countries will be released on Thursday. They are often pointers to what the GDP data for this quarter will look like which will most likely influence the decision of the policy makers.

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