Summary: Fears of a second wave of the coronavirus swept markets after weekend reports of a fresh outbreak in Beijing, China amidst the reopening of many global economies. Beijing shut down its biggest fruit and vegetable market and nearby housing districts after dozens associated with the centre tested positive. In the US, record numbers Covid-19 cases and hospitalizations swept through several states led by Texas, Florida, North Carolina, Arizona, California, Oklahoma and North and South Carolina. On Sunday, Tokyo reported its highest number of coronavirus cases since May. Risk appetite remained wobbly on Friday even as Wall Street stocks rebounded from lows at the NY close. The Dollar maintained its rally its rivals that began on Thursday, despite easing off its highs. In early Asia, the Euro was trading at 1.1245 from 1.1295 Friday morning, above its overnight lows at 1.12136. Dismal UK economic data saw Sterling plunge to 1.2511 (1.2595 Friday). The risk sensitive Australian Dollar gapped lower in early Asia to 0.6825 from Friday’s New York close of 0.6840 and its 0.6850 opening. The USD/CNH (offshore US Dollar/Chinese Yuan) jumped to 7.0870 from 7.0750 NY close. Against the Japanese Yen, the Greenback was higher, changing hands at 107.47 (106.85 Friday). Japan’s Revised Industrial Production fell more than expected and the 10-year US bond yield was up 3 basis points to 0.70%. Equity prices rebounded off their lows on Friday. In New York, the Dow finished up 1.35% to 25,547 (25,237). The S&P 500 rose 0.73% to 3,040 (3,020).
Data released Friday saw Japan’s Revised Industrial Production fall to -9.8% from -9.1%, missing forecasts at -9.1%. The UK’s May GDP slumped to -20.4% from April’s -5.8%, underwhelming expectations of -18.6%. Britain’s Manufacturing Production dropped to -24.3%, missing forecasts at -15.0%. Construction Output plunged to -40.1% from the previous month’s -5.9% and expectations of -24.0%. Canada’s Capacity Utilisation Rate slumped to 79.8% from 81.4%, missing expectations of 80.1%. US Preliminary University of Michigan Consumer Sentiment climbed to 78.9, beating median forecasts at 75.0.
On the Lookout: Asia opens a new week amid fears of a second wave of coronavirus cases ahead of a big week. Today sees the release of China’s trifecta of Fixed Asset Investment, Industrial Production and Retail Sales data. China also reports on its Unemployment rate. Expectations from analysts are for an overall improvement in the economic data even as Beijing’s partial shutdown renewed fears of the pandemic. New Zealand’s Food Price Index, just out, saw Food Prices slump to -0.8% from the previous month’s 1.0%. The Kiwi was little changed at 0.6425.
Other data released today see Japan’s Tertiary Industry Activity report, the Eurozone’s Trade Balance and Swiss PPI. Canada releases its Manufacturing Sales. The US rounds up today’s data with its Empire State Manufacturing Index and TIC Long-Term Purchases.
The week ahead sees the Bank of Japan’s policy meeting, monetary policy statement and BOJ Press conference. Thursday sees the Swiss National Bank’s Policy rate meeting and SNB Press Conference. The Bank of England’s monetary policy meeting and outcome is mid-week (early Thursday morning in Sydney). Federal Reserve President Jerome Powell appears twice this week with speeches on the US economy and Covid-19. Norway’s central bank also has its policy meeting this week. Emerging Market central banks also meet on policy this week with Indonesia, Taiwan, Poland, Russia, Chile scheduled.
Trading Perspective: Risk will remain jittery and we would need to see much better than anticipated data to offset current market fears of a second wave of coronavirus cases. This should keep a bid to the US Dollar and the currencies will struggle. Traders will keep their eyes on any developments on the pandemic. Amidst all of this, there seems to be no end to protests, although there has been a slowdown in the pace of events. The risk currencies may have more downside room in this environment.
AUD/USD – Recent Strength Sapped, Covid-19 Second Wave, China Data Next
The Aussie Battler extended its slump lower against the US Dollar after its foray above 0.70 cents last week. AUD/USD closed in New York on Friday at 0.6845, little changed from its opening price at 0.6850. Latest reports of a rise in Covid-19 cases in Beijing, Tokyo and many US states weighed on risk sentiment and the Australian Battler.
AUD/USD hit an overnight low of 0.67998 on Friday before bouncing back to 0.6840 as equities rebounded in late New York. This morning, the Aussie stays depressed, following the latest news of a partial, Covid-19 related shutdown in Beijing. Today sees the release of China’s trifecta of Retail Sales, Industrial Production and Fixed Asset Investment data. Overall improvements are expected on the reports for last month as China’s economy recovered and the country eased lockdown restrictions. This latest piece of news from Beijing is a set-back and any further rise in cases will see risk appetite slump. The data will have to be exceptional to trump any Covid-19 spike in cases.
AUD/USD has immediate support at 0.6800 followed by 0.6750 and 0.6720. Immediate resistance can be found at 0.6870 and 0.6910. Look for consolidation in a likely 0.6760-0.6860 range today. Prefer to sell rallies.
EUR/USD – Downside Stalls at 1.1200, Stale Longs Pressure Downside
The Euro extended its decline amidst broad-based US Dollar strength, falling to an overnight low at 1.12136 before climbing to settle at 1.1235 in New York (1.1295 Friday Asia open). This morning, the shared currency saw a bounce to its current 1.1252. The risk-off sentiment due to fears of a second wave of Covid-19 affects the Euro less than the other currencies. Which is mainly because the situation in Europe is calmer in both politics and the virus pandemic. Market positioning in the shared currency remains long at multi-year highs and this will continue to cap any meaningful topside moves.
EUR/USD has immediate resistance at 1.1265 followed by 1.1305 and then 1.1400. Immediate support can be found at 1.1200 and 1.1160. Look for consolidation today between a likely range of 1.1180-1.1280. Prefer to sell rallies.
USD/CAD –Risk-Off Rebound Intact, Topside Room Exists
The US Dollar bounced off its lows against the Canadian Loonie on broad-based Greenback strength and a shaky risk appetite. Steady oil prices, which saw a modest rally failed to lift the Canadian Dollar. USD/CAD closed in New York at 1.3605 on Friday (1.3630 opening), and an early Asian open at 1.3625. Canada’s Capacity Utilisation dropped to 79.8% in May from an upwardly revised April figure of 81.4%, missing forecasts at 80.1%. Canada’s economic data has underwhelmed expectations. This week ahead sees Canadian Retail Sales (Friday).
The market’s risk-off stance should keep a bid on the USD/CAD pair with chances of a topside rally. USD/CAD has immediate support at 1.3580 followed by 1.3540 and 1.3500. Immediate resistance can be found at 1.3670, 1.3720 and 1.3800. Look for consolidation within a likely range today of 1.3580-1.3720. Prefer to buy dips.