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
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