A new hypothesis emerges

By 10/08/2020News
Morning Stock News

Gold  2028,70

EURUSD   1,1794

DJIA  27444

OIL.WTI  41,81

DAX   12706,26

Analysts say in one voice that the exchange rate depends on the monetary policy of banks. When one country in the world starts printing money actively, the national currency rate falls. When the monetary policy is tightened, the national currency rate increases. Looking at the events of last week, another hypothesis appeared.


A week ago, the number of newly detected COVID-19 cases finally began to decline. And in Europe, on the contrary, it is growing dramatically. Now we look at the chart above. And what do we see on it?
The strongest bullish trend in the EUR/USD pair has suddenly stopped. The trend exactly corresponds to the change in the coronavirus situation on different continents.
One can imagine that in one country of the world monetary policy is tightening, but in another country, on the contrary, it is weakening. And both of these processes are happening simultaneously. However, this is not happening!
If we are right, this trend will begin to gain momentum during the month of August. And the dollar, instead of falling into the abyss, will start growing again, especially towards risky assets and currencies. An additional growth factor is that August is traditionally a bad month for emerging markets. Historically, many crisis processes started in this month of the year. This means that large investors have no great desire to buy assets, which are quite expensive. Especially during the holiday season, when business activity is decreasing.
How is it that some invisible virus brought the world’s leading economies and central banks to their knees? This is a new reality, which could be read in fantastic novels, but never imagined in real life.


However, everything written above has nothing to do with gold. Currencies from different countries can devaluate relative to each other. However, all together they devaluate in relation to gold.
The worse the situation with COVID-19, the more money will be printed. And there are only a couple of months left in the Western hemisphere before the cold season. So we wait for a second wave of coronavirus, new restrictions and business closures. And new payments to companies and their employees. Accordingly, the demand for gold will continue to grow.
What will stop gold from growing? Only a confluence of the following factors:
• Coronavirus vaccine and at least 70% of the world population vaccinated with it
• Start of economic recovery
• Monetary policy tightening by central banks

What’s waiting for us today?

03:30 China Consumer Price Index for July
07:45 Unemployment rate in Switzerland for July

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.