FX Update: Trump has Covid-19 and first move is risk-off FX Update: Trump has Covid-19 and first move is risk-off FX Update: Trump has Covid-19 and first move is risk-off

FX Update: Trump has Covid-19 and first move is risk-off

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The US dollar and Japanese yen knee-jerked stronger on the news in early European hours that US President Trump and the First Lady have tested positive for Covid-19 after traveling with a sick aide in recent days. The implications of this news could turn in very different directions for markets from here depending on how serious Trump reacts to the virus.

Trading focus:

Tactical uncertainty on Trump Covid-19 positive test
The first instinct when any bombshell hits the market that increases uncertainty is to head to the hills. Somewhat surprisingly, the market tone managed to stay positive despite lack of progress on new stimulus measures in the US (more on that below) and even after it was clear that Trump had been heavily exposed to the virus in recent days when it turns out an aide traveling with him to campaign events tested positive yesterday. But the situation can quickly go in very different directions from here

Mild case – Trump gets a light sniffle and is battle ready after a week to ten days. Not only would the net effect be negligible on Trump’s health, but could also provide him with ammunition in his claims that most people – even a relatively older man like himself – don’t get severe systems and that his opponents have been wrong to so strongly criticize his handling of the virus.

Sever case – Trump is sideline with a severe case of the virus for two weeks or more. Anything resembling a case as sever as UK Prime Minister Boris Johnson’s case back in the spring (16 days from announcement of a positive test until he was released from hospital) could underline the severity of the virus and keep Trump’s schedule reduced and his energy low and maybe enhance the credibility of criticisms of his administrations’ handling of the virus and change the mind of  some small cross-section of voters.

For now the market is taking this situation as driving a shift in favour of Biden, with the USD positive reaction on the tail of that showing that risk sentiment swings seem more important for driving the US dollar at the moment than any thoughts about the budget deficit outlook and risk to inflation down the road from higher Democrat spending levels (only in the event Dems get the Senate back, of course).

Remember the US stimulus question – the more important factor here if Trump’s Covid-19 proves a mere distraction.
The House Democrats passed a $2.2 trillion bill for new stimulus by a relative narrow margin and with zero Republican votes. This is smaller than their original stimulus package of well over $3 trillion, but their moving forward with this deal is seen by some as providing little hope that the  Trump White House is ready to make a deal, with a possibly side-lined Trump adding to the risk of no-deal at the margin. No stimulus is risk sentiment negative and therefore generally USD positive, given recent patterns.  A breakthrough is still a possibility over the weekend, with House Speaker Pelosi set to meet US Treasury Secretary Mnuchin at the weekend.

Brexit – spot trading is dangerous business – options an idea.
If it wasn’t already obvious, yesterday’s price action in sterling underlined the risk of trying to express a tactical view in sterling via spot trades, as conflicting headlines on the state of post-Brexit sterling all over the map. Positioning in options is an idea for those who would like to have a position over the next critical few weeks of the negotiation period and even for beyond December 31 for anyone believing that the talks will go to the wire. A long strangle position in either EURGBP or GBPUSD (long both an out of the money put and call) are a way to trade volatility with no idea of the directional view, and those with directional views can consider taking a long position in either a put or a call or a put spread or call spread. An option spread (long one option and short another option that is much farther out of the money reduces the extent of the directional move needed to break even but reduces also the maximum potential profit if volatility spikes significantly.  In an escalation of the stakes of the negotiations, UK Prime Minister Boris Johnson is set to meet EU Commission president Ursula Von Der Leyen tomorrow.

AUDJPY is a classic proxy within G10 currencies for risk appetite and found resistance – as did many USD pairs – right at important resistance, in this case, the head-and-shoulders-like neckline around 0.7600 and just ahead of the21-day and 55-day moving averages. Arguably, this is a kind of bull-bear line, as is the 0.7200 area in AUDUSD – for risk sentiment in FX at the moment. Stay tuned – hard to believe that traders would want to get aggressively risk-on ahead of the weekend as we await more news on Trump’s condition.

Source: Saxo Group

Oops – what happened in commodities yesterday? Watching commodity FX
The commodity complex had an interesting session yesterday, with oil prices dragged lower still and perched on the precipice of major support. The oil demand picture is looking tenuous as some major European cities from Madrid to London to Paris may be on the verge of new lock-downs and the case count in the US has failed to continue falling. Weak commodity prices are a hitch in the reflationary narrative and are worth watching, not only for petro-currencies, but any commodity-linked currency like AUD and others. The copper price in particular suffered a massive drop yesterday. Still, it is interesting to see that EURNOK has pushed significantly back lower this  morning despite both the risk-off and weak oil prices – a strong showing for the krone.

US employment data – not holding breath
US September nonfarm payrolls change is up later today and expected at Some conflicting thoughts and impression on the US employment picture this week – it is still a concern that the weekly initial claims number has only dropped some 50k in total over the last several weeks – a glacial pace compared to what is needed to suggest a more rapid return to normalcy and we have widely covered threats of imminent firings by Disney and airlines. Yes, the continuing claims drop looked impressive and the ADP payroll jump in August was a solid +750k, but isn’t it remarkable that the US ISM Manufacturing Index Employment sub-component continues to fail to show net hiring, with its reading of 49.2? Some of that likely linked to the ongoing malaise in the shale oil/gas patch. The official nonfarm payrolls change number out later today is so statistically massaged that it is often only relevant on a long-term moving average basis. My next focus for US labour market related data will be the Employment sub-component of the Sep. ISM Services survey to be published on Monday.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – US Sep. Nonfarm Payrolls & Average Hourly Earnings
  • 1230 – US Sep. Unemployment Rate
  • 1400 – US Aug. Factory Orders
  • 1400 – US Final Sep. University of Michigan Sentiment


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.