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Euro Dips due to Fears of French Lockdown

Euro Dips due to Fears of French Lockdown

On Wednesday, the U.S. dollar climbed against the euro on prospects of a national lockdown being imposed in France. This prompted the implied volatility measures in the yen and the common currency to hit highs of multi-months, as traders got ready for the U.S. presidential elections scheduled for next week. The dollar declined against the safe-haven yen, as market sentiment was weighed down by the disappointment of not seeing any progress in the issuance of a new fiscal package in the United States. On Wednesday, a televised addressed will be delivered by French President Emmanuel Macron. 

There have been multiple media reports stating that a new lockdown will be imposed by the French government from midnight on Thursday. There was also a fall in riskier assets in various markets due to news that Pfizer hasn’t been able to determine as yet that how effective its late-phase coronavirus vaccine can provide protection against the disease. Hence, this only added to the cautious mood. The safe-haven Japanese yen climbed by 0.2% to reach 104.16 per dollar, which is the highest it has been in a month. In contrast, the euro fell by 0.4% to trade at $1.1753. The one-week implied volatility measures in yen and euro reached their highest level in almost seven months.

This suggests that investors are prepared for sharp movements in price, with the highest focus on the United States, since it is struggling to contain the COVID-19 global pandemic while people are voting early in huge numbers for what appears to be a pivotal presidential election on November 3rd. Markets are betting on a high probability of a clear win by Democratic candidate Joe Biden, as he is leading in opinion polls. However, there are investors who are skeptical because a Donald Trump victory had not been predicted in polls in the last election either. 

According to market analysts, this has prompted the strengthening of the dollar because investors are not willing to go long before the U.S. presidential elections. The legal battles between Democrats and Republicans over the vote-counting process has also increased the risk of a disputed election result. Once the elections are over, the focus of the market will once again turn more towards the sharp increase in the COVID-19 infections. Tracking the currency against a basket of six major currencies, the dollar index climbed by 0.2% to reach 93.31. 

In the offshore market, the yuan was trading at 6.7171. The implied volatility of the Chinese currency surged to reach its highest level since the start of the year 2016. This is a massive jump and indicates exactly how markets have changed and become unpredictable due to the global coronavirus pandemic. As of now, the second wave of the coronavirus, the Brexit trade deal negotiations, and the U.S. presidential elections have left the markets very uncertain. Economic recovery has already slowed down and will suffer more if new coronavirus lockdown measures are imposed in Europe and the United States.

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