Haunted 2020 Recovery—Dollar Down As We Forecasted

The Déjà vu we talked about is real—just as the troubles of 2019 are back in play. 2020 will forever be marked as a moment of global panic and change that could breed a period of innovation and resolve to make for better health as well as safety systems.

Earth with Mask and Dollar SignNevertheless, that idealism is confronted by the realities of the recent past. Yes, that period prior to us being preoccupied with the deadliness of respiratory virus that made us reconsider and question everything about how we go about our lives. To recall where we were, let us highlight what has occurred thus far in May as it is coming to a crucial close.

March and April are pajama months for all us, employed or not, as we embraced the magnitude of the physical threat to our existence that suddenly forced inactivity. The lack of participation showed the weakness in preparedness for the unexpected and shocked a globalized supply chain system without much of a plan to shut down entire sectors of the global economy while trying to contain the contagion.

The result came in the form of various degree of infection and deadliness which we will need to comprehensively deal with as we start exiting our homes in a larger scale. Economic data has painted a dark, yet clear picture: millions of jobs lost. However, there is an optimism, mainly witnessed in stock exchanges, that is tied to the significant changes to monetary policy authorities and aid packages seeking to promote relief as well as growth.

More importantly, investors seem to be overlooking that there were issues from the year prior that are echoing the frustration and anxiety of pre-COVID-19 life. Market guidance was already iffy as the mystery of trade tensions haunted many decisions as well as caused the downgrade of various growth forecasts for the globe.

This coronavirus period of three months of uncertainty and unprecedented action has been a major wake-up call. Will we see a more integrated and open-communicated world to prevent the damage of a second wave? Will we get a vaccine that will ease fears of a return to normalcy?

These questions will take the rest of the year and more to answer, but here we are once more focusing on the tense relationship with China after both countries have criticized each other for not being honest about each other’s intentions although a Phase One agreement has been settled. Once more, we question the stability of the Euro-bloc since a recovery fund had to be established as counting on the EU’s parliament ability to come together was disappointing.

Finally, Brexit and the idea of a more isolated U.K. bring up pessimism over the progress of free trade. So far, the buck has not surprised us a lot, and the high volatility has made swings a routine. We seem to be in the right when thinking that the greenback hit its peak during March as the safe-haven appeal could not be eroded amidst the chaos. That safe-haven appeal during dark times is now in question.

Furthermore, the resurgence of the EU’s member nations is propelling the value of the shared currency, one we have faith in re-strengthening as we see recovery bear fruit. The oil-price drama has resulted in basically a lost quarter as production eventually got cut and the need to revamp manufacturing as well as travelling will help that industry and its producing countries survive.

We see MXN and CAD with fortunate upside much like Euro, and nearly most currencies shall experience a jump since just the very idea of being able to see any expansion to their indicators will be an incentive to start holding other assets. There will not be major changes as we are yet to tackle the tasks at hand when January began, and we were in a different place.

Juan Perez Senior FX Trader and Strategist Tempus

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