Summary: Hongkong became the focus of further tensions after China unveiled a plan to take a stronger stance on antigovernment protests in the territory. On Friday, President Trump said that Washington would address the issue “very strongly”. The Dollar Index (USD/DXY) extended its overnight gains in London trade, rising further in New York to 99.976 (99.428). Relations between the US and China have worsened since the coronavirus pandemic, lifting the market’s risk-off stance. The British Pound slumped 0.78% to 1.2167 (1.2225), finishing as worst performing major, after UK Retail Sales in April plunged to -18.1% from March’s -5.1%. Risk currencies, the Aussie and Kiwi were sharply lower. The Australian Dollar extended its drop by 0.55% to 0.6535 from 0.6567 Friday. The Kiwi fell 0.67% to 0.6095 (0.6122). The Euro retreated anew, down 0.6% to 1.0902 from 1.0948. USD/JPY finished little-changed at 107.60 from 107.62 Friday. Against the Offshore Chinese Yuan, the Dollar (USD/CNH) rose to 7.1500 from 7.1075. Wall Street stocks steadied at the New York close with modest gains. The DOW was up 0.17% to 24,520 (24,437) while the S&P 500 closed at 2,961 from 2,945 Friday. Yesterday White House Security Advisor Robert O’Brien said that the US government will likely impose sanctions on China if Beijing implements the national security law that would give it greater control over Hongkong. The key US 10-year bond yield steadied to 0.66% from 0.67%.
Canada’s Retail Sales fell to -10.0% in April from the previous month’s 0.4% but beating median forecasts at -10.4%. Core Retail Sales slipped to -0.4%, better than expectations of -4.8%.
On the Lookout: Expect trading to be cautious and thin today with the UK and US markets closed. The UK celebrates its Spring Bank holiday while the US celebrates Memorial Day. Asian markets will keep the spotlight on antigovernment protests in Hongkong against China.
There is little in the way of economic data releases today. Asia are quiet while Europe sees Germany’s Final GDP (Q1) released. Germany’s IFO Business Climate follows.
Trading Perspective: We can expect the Dollar maintain overall strength with tensions between China and the US running high and the market’s risk-off theme. Breakouts though are likely to be averted. Asian traders will focus on any escalation of tensions from China regarding the US response to its Hongkong national security law. Tensions are likely to remain heightened.
We take a look at the individual currencies.
AUD/USD – Risk-Off Weighs on the Battler Toward 0.6470 Support
The Australian Dollar finished 0.55% lower to 0.6535 New York close from Friday’s 0.6567 opening in Asia. Overnight the AUD/USD pair hit a low of 0.65059. With the UK and US on holiday today, trade will be slower today with the ranges likely to hold. Rising tensions between China and the US will be a weight for the Aussie Battler which has held up remarkably well. Australia and New Zealand have battled the Covid-19 outbreak better than the rest, easing restrictions earlier than most. With the cooler winter just ahead (June-August), a second wave of infections are likely though.
AUD/USD has immediate support at 0.6500 followed by 0.6470. Immediate resistance can be found at 0.6570 and 0.6610. Market positioning on the Aussie remains short. Last week we the COT/CFTC report saw a modest increase to -AUD 35,425 from the previous week’s -AUD 33,455. Look for a likely trading range today of 0.6475-0.6575, the preference is to sell rallies.
EUR/USD – Upside Potential Limited, Cloudy Outlook Risks Lower
The Euro failed in its attempt to rally above 1.1000 last week (1.1008 Thursday) following some strong selling from speculative long Euro bets. EUR/USD retreated further towards 1.0900 with a close in New York at 1.0902 from Friday’s opening at 1.0948. The shared currency slipped to an overnight low at 1.08854 before climbing to settle at 1.0902.
Germany’s IFO Business Climate and Final Q1 GDP data are released today. The Franco-German proposal for an EU Recovery Fund remains the Euro’s biggest support. Speculative long Euro bets will continue to cap the topside of the shared currency.
EUR/USD has immediate support at 1.0880 followed by 1.0850. Immediate resistance can be found at 1.0950 (1.09536 overnight high) and 1.1000. The overall range between 1.08-1.10 since early April looks likely to continue. The risk is still lower while the market’s positioning is long. Look to trade a likely 1.0870-1.0970 range today.
GBP/USD – Sterling is Slip Sliding Away, Risks Lower to 1.2075 Support
The British Pound slumped 0.78% overnight to close in New York at 1.2167 from Friday’s 1.2225 opening. Sterling was the worst performing currency against the US Dollar following the release of dismal UK Retail Sales data. Which added further pressure on the British Pound. The UK government has come under increasing pressure regarding its handling of the coronavirus crisis while risks that no free trade deal between the UK and the EU have elevated. Last week the Bank of England policymakers did not rule out negative interest rates.
Sterling traded to an overnight low at 1.21616 and its close was not far away. A break of the overnight low will see the next support at 1.2125 followed by 1.2075. Immediate resistance can be found at 1.2200 followed by 1.2240 (overnight high 1.22336). The latest COT/CFTC report saw a modest increase in speculative short GBP bets to -GBP 13,688 contracts from -GBP12,005.
Look for a likely trade today between 1.2130-1.2230 today. Prefer to sell rallies.