Freshly minted gold positions suffered a significant setback overnight as risk asset flourished on rising hopes for a new coronavirus vaccine.

Indeed, it was the express elevator ride up and down for gold price after gaining a bit of traction over the last 2-3 sessions without any particular news that would justify the rally.

There had been no absolute increase in trade war rhetoric and all the weak US data was in the price as was Powell ‘s comments

Fast money chased the technical break above US$1740, a level which had held several times in the past.

Those same speculators were forced to liquidate as risk assets bounced. So gold will likely need to reclaim that level to push higher again this week.

For long-term gold positions, a vaccine may not be an absolute game-changer as central bank balance sheets will not miraculously evaporate and political/trade tensions between China and the US are unlikely to de-escalate.

And more to the bullish point for gold as investors transition from a world where central banks’ primary function was inflation control to the new world order where their primary purpose is to finance government spending. Many investors will continue to exit fiat currencies in favour of gold.

Central bank’s worrisome balance sheet expansion is unequivocally one of gold’s primary drivers. And hedging against an escalation in US trade tensions also seems like a great idea.

With interest rates near 0 % global opportunity cost of owning gold remains alternatively attractive to currency hedges as the path of the US-China trade war could be paving the way higher with gold bars.

The reflation trade may now correctly map to equity markets as commodity and oil stocks start to surge if we move into a full-fledged recovery on a cure.

In that case, we could expect the world will face the enormous wave of asset price inflation/fiat currency debasement in recorded history.

Once the economy returns to pre-pandemic all systems go, the incomprehensibly-large global stimulus will find its way into every liquid asset imaginable and should be a boon to gold.

Currency markets

The dollar fell as risk appetite rebounded on the news of an experimental vaccine showed signs of fending off the coronavirus.

Euro climbs

The Euro climbed the most in almost six weeks as Germany and France agreed to support a $543 billion fund to counter the economic fallout in the European Union. Angela Merkel and French President Emmanuel Macron proposed a plan to disburse money to member states, with payments based on contributions to the bloc’s budget as part of the coronavirus recovery efforts.

The Euro was a standout short position on last week’s “commitment of trader’s report.” So, this latest EU capital markets supportive news likely triggered a sizable wave of short-covering after a break of 1.0875

Oil currencies

Commodity-linked currencies bettered their G-10 counterparts as oil climbed to the highest level in two months while trigging sizable inflows into Petro currencies overnight with the Norwegian Krone a big beneficiary.

Australian and New Zealand Dollar

Higher commodity prices trigger waves of buying across the commonwealth and commodity block of currencies where both the Aussie and Kiwi stood out.

Higher industrial commodity prices are a boon to the Aussies while the Kiwi was coat-tailing the rest of the commodity pack as traders quickly turned into a short-covering frame of mind. The NZ dollar has, until the vaccine headline, been under immense pressure since the RBNZ indicated a willingness to move into negative interest rate territory.

The British Pound

The pound rebounded on significant dollar losses in the NY morning session. The FTSE has a strong correlation to energy prices, which triggered equity inflows into the London bourse.

And Cable walked back its earlier declines after Bank of England Chief Economist Andrew Haldane wire reports the BoE was exploring unconventional monetary policy measures, including negative interest rates.

Asia FX: The Yuan

The Yuan is expected to range trade ahead of the NPC. And with President Xi trying to put out blame game flames by offering the vaccine to the world if China develops one, it is highly unlikely regulators are looking to reignite global trade war flames by weaponizing the Yuan post NPC.

But with China in Trump’s crosshairs from now until the November 2020 election, the USDCNH could remain bid on dips until there is a definite and unquestionable rebound in China growth, which may happen as the global economies emerge from lockdown possibly firing up China export sectors.

USDCNH has been trading in quite a narrow range but could drift lower this week if the NPC opens up a more accommodative monetary and fiscal policy stance

The Ringgit

Despite surging oil prices, the MYR was held hostage to foreign outflows that are finding their way into less risky and better pockets of opportunity around the globe as western and some Australasian economies reopening to the sound of department store cash registers ringing.

So, the Ringgit once again finds itself relegated to catch up duty when the Malaysian economy emerges from the MCO.

But with Oil prices firm, the MYR should not weaken much further, benefiting from the increase on petrodollars per barrel as oil markets rebalance quickly.

FX and GOLD markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp