Forex: investors are getting rid of refuge currencies

Early this week, the world received a well-deserved dose of optimism. Preliminary results from an experimental vaccine developed by Pfizer in the United States and BioNTech in Europe showed impressive results. Specifically, the efficacy against the spread of the recent big virus exceeds 89%.

This news has created turmoil in financial markets around the world. Suddenly, a shift was taking place from what was considered a safe haven to normal, steady assets.

Perhaps the quickest market to react was the currency market. However, equities also reacted quickly, as seen in the declining technology sector and rising cyclical stocks. It should be noted that the technology sector in the United States has been a safe haven in itself as investors have driven the value of some technology companies to unimaginable levels. Now that a vaccine solution may be possible sooner rather than later, the substitution of "work from home" and "teleworking" companies (e.g. Zoom, Amazon, etc.) for airlines, cruise lines, entertainment and leisure companies, banks (e.g. Disney, American Airlines) has begun.

How did the currency market react?

One of the strongest currencies during this crisis was the CHF. Although the SNB did not hide the fact that it had intervened at the expense of the franc, investors continued to make offers for the franc. It is still considered to be the safest currency to own in times of recession, along with Japan's yen.

The positive news about the virus vaccine caused the franc to fall in all areas. Perhaps the most visible reaction has been on the GBP/CHF pair.

This pair was one of the most volatile crosses on the foreign exchange dashboard. When measured by the ATR (Average True Range), few other currency pairs have exceeded the volatility of the GBP/CHF in the past. However, during this year's virus situation, or since the end of the 1st quarter, the cross has only consolidated horizontally. Every time it has tried to cross the 1.20 level, it has been reversed by sellers.

This week it crossed the threshold again with conviction. It benefited from the strong capital outflow of the CHF and the general dumping of safe-haven currencies.

The yen also fell. The USD/JPY, the most important of all, fell from 102.90 to 105.55 and the week isn't even over yet. Similarly, the USD/CHF has rebounded strongly from the magic figure of 0.90. The USD/CHF has also rebounded sharply from the 0.90 level.

The price of gold has also fallen on the news. Gold is seen as a hedge in times of recession. However, while this new vaccine signals the end of a recession, gold denominated in USD has fallen by more than a hundred points, from $1,969 to $1,869.

Safe haven currencies send a strong signal. Will the equity markets follow?