Tightening of quarantine in Europe?

Financial and commodity markets analytics

Market Watch review. 21.09.2020

In today's release, we’ll cover the following topics:

  • USD / JPY currency pair updated lows.
  • General strengthening of USD.
  • Oil market sales.

Despite the fact that today is a day off in Japan as it is Respect for the Aged Day, the activity of sellers of the USD / JPY currency pair remains quite high. The increase in demand for JPY may be due to the sell-off in the European stock market. The JPY looks like a more attractive currency compared to the USD in the face of uncertainty and the confirmation of the Fed's readiness to keep rates near zero for a long time.

But at the same time, I would like to draw your attention to the rather strong strengthening of the USD in the first half of the European trading session. Most likely, the US dollar attracts the attention of investors, acting as a defensive asset against the background of increasing sales in the European stock market, which in turn is due to growing fears of the announcement of another quarantine in Europe. This scenario is extremely negative, so trading volatility has increased significantly.

In just the first few hours of the European trading session, the EUR / USD pair fell by more than 70 points, while the EURO Stoxx 50 stock index lost more than 2.5%, helping to strengthen the US dollar. Quarantine remains one of the most obvious reasons for panic in the European stock market, or rather the growing risk of its tightening in a number of European countries.

If we move on to the GBP / USD currency pair, we will see an even greater scale of decline, as the pair is under pressure not only from the strengthening US dollar, but also by the extremely vulnerable GBP. After all, there is still no trade agreement under the Brexit deal, and the likelihood of reaching it is decreasing every day. As a result, by 12:00 Moscow time, this currency pair fell by more than 130 points, breaking the important technical support level at 1.2850.

Moving to the black gold market, I will note a fairly strong wave of decline. Oil of the American WTI grade was rapidly losing ground, as the next tightening of quarantine measures is critical for this market. After all, even a slight decrease in physical demand will return quotes below $35 per barrel. At the moment, it is extremely difficult to exclude this scenario, and to a greater extent it will depend on the readiness of governments to tighten the terms of quarantine restrictions in a number of European countries.

Closely monitor the news background and be prepared for all the surprises of the market.


Analyst

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