Summary: Markets cheered a stock market rally in China, shrugging-off the continuing rise of new coronavirus cases in the US and other hotspots around the world. Upbeat global Services data released on Thursday from China through to Europe and the U.S. lifted optimism, boosted risk and pounded the Dollar. Yesterday the US ISM Non-Manufacturing Index in June soared to a 57.1 reading, the highest since February. May Eurozone Retail Sales jumped 17.8%, bettering forecasts. Chinese stocks soared 5.71% yesterday after authorities encouraged people to buy equities to support the recovery from the Covid-19 crisis. The Euro outperformed, climbing above 1.13 for the first time in two weeks to an overnight high at 1.1345, finishing at 1.1310 (1.1250 yesterday), a gain of 0.65%. Europe’s ongoing signs of recovery from the coronavirus crisis remains ahead of that in Asia and the Americas. Sterling was up 0.25% to 1.2490 (1.2475) on the generally weaker Greenback. No progress has been reported on the later round of face-to-face talks between the EU and UK on Brexit. The Australian Dollar jumped to 0.69876 overnight and near one-month highs before easing to settle at 0.6975 (0.6945 yesterday). The RBA is widely expected to leave interest rates unchanged at the conclusion of its meeting today (2.30 pm Sydney). Aussie traders ignored the worsening Covid-19 conditions from the outbreak in Melbourne’s suburbs which saw New South Wales close its borders with Victoria for the first time in 100 years. The outlook on the economy from the RBA takes on added significance today. The Dollar dipped against the Japanese Yen at 107.37 (107.50). Against the Canadian Loonie, the Greenback slid to 1.3518 overnight and two-week lows, climbing in late NY to close at 1.3545 from 1.3560 yesterday. The Bank of Canada’s Business Outlook Survey Index slumped to -7 from -0.7. The business sentiment index was the lowest since 2009, which was ignored by FX. Wall Street stocks rallied on the risk-on sentiment. The DOW climbed 2.1% to 26,285 (25,755) while the S&P 500 added 1.75% to 3,178 from 3,128 yesterday. Global bond yields were static. The key US 10-year note yielded 0.68% from 0.67%.
Data released Friday saw Germany’s Factory Orders in June slump to 10.4%, missing forecasts at 15.1% while May’s data was revised downwards to -26.3% from -25.8%. The Eurozone Sentix Investor Confidence Index slid to -18.2 from forecasts at -10.8. UK Construction June PMI’s rose to 55.3 from 28.9 in May and beating forecasts at 46.0. Eurozone Retail Sales jumped to 17.8%, beating expectations at 15.0%. US ISM Non-Manufacturing PMI’s soared to 57.1 from 45.4 in May, bettering forecasts at 50.0.
On the Lookout: Global markets continued to shrug-off current resurgence in Covid-19 infections. New coronavirus cases surged with the total cases in the US climbing above 3 million (3,022,625). The US is re-emerging as the global hotspot. While the death rate remains low in the US, almost 133,000 Americans have died due to the pandemic. How long can Wall Street and FX continue to defy this surge? The latest set of upbeat economic data were the result of the rebound in June due to the restricting of lockdowns. We have seen some countries push back and/or delay their recent reopening to businesses. Upcoming economic data released later this month will reflect those decisions. The RBA rate decision (cash rate 0.25%) and statement take the spotlight today (2.30 pm).
Data releases today kicked off earlier with New Zealand’s NZIER Business Confidence Index improving to -63 in May from the previous month’s -70.0. Australia’s June AIG Services Index dipped to 31.5 from 31.6. Both the Aussie and Kiwi hardly moved.
Japan follows next with its Average Cash Earnings and Household Spending reports. Japanese Leading Indicators follow. European data start with Germany’s Industrial Production (June), French Trade Balance, and Italian Retail Sales. The UK releases its Halifax House Price Index (June). Canada kicks off North American data with its IVEY PMI report. The US finishes the day’s reports with its JOLTS Job Openings.
Trading Perspective: While it is difficult to see this optimism continue with the rising numbers of coronavirus cases, not just in the US but in other troubled global hotspots (India, Brazil, Russia, Mexico, Pakistan etc), traders will continue to own risk (stocks) and punish the US Dollar. Some have correctly pointed out that the death-toll remains less than 5%, particularly in the U.S due to more testing. Much of the victims of the recent rise in cases are younger people, less likely to die.
This resurgence has yet to feed into the economy which will be seen in the data that lies ahead this month. Lastly, recent market positioning has pointed to a rise in net USD shorts, We examine the latest report later this week.
AUD/USD – Jumps on China Stock Rise; RBA, Victoria Outbreak Caps above 0.7000
The Australian Dollar jumped 0.67% to finish at 0.6975 from 0.6945 yesterday boosted by the market’s risk-on stance. Yesterday’s lift in Chinese equities which saw the Shanghai Stock market soar 5.7% saw the Aussie Battler outperform most of its FX peers. Aussie traders ignored the closure of the border between New South Wales and Victoria for the first time in 100 years due to rising Covid-19 infections in several suburbs in Melbourne. There were 127 new cases reported yesterday, including two deaths in the southern state of 6.6 million people. A study by Deloitte economists saw the cost of a second wave of coronavirus infections to the Australian economy pegged at AUD 100 million.
The spotlight is on the RBA today where the Australian central bank is widely expected to leave its Overnight Cash Rate at its current all time low of 0.25%. Traders will look to the RBA rate statement and their outlook on the economy. This latest surge in Covid-19 infections in Victoria are likely to influence RBA Governor Phillip Lowe and his colleagues. We reported last week that the latest Aussie Dollar speculative short positioning was the lowest since 2018. This will see the 0.7000 cent area likely to cap any Aussie Dollar advances much beyond.
AUD/USD has immediate resistance at 0.7000 followed by 0.7030. Immediate support can be found at 0.6960 followed by 0.6930 and 0.6880. Look to sell into any rallies toward 0.70 cents in a likely consolidation within a 0.691-0.7010 range today. The Aussie is ripe for a downward correction.
EUR/USD – Slips Off 1.1345 Highs, One-Week Uptrend Shaky
The Euro extended its advance peaking at an overnight and near two-week high at 1.1345 before slumping to 1.13710 in late New York. With Europe less affected by the resurgence in Covid-19 infections and improved economic data, the Euro has benefitted. Yesterday, Eurozone Retail Sales increased more than expected and offset a fall in Germany’s Factory Orders. Late last week, Euro area services data mostly bettered expectations. These factors have served to boost the shared currency which has enjoyed an uptrend for one week now. However, net speculative long Euro market positioning, already at their largest since early 2018, continues to build. This is a big danger signal.
EUR/USD has immediate resistance at 1.1350 followed by 1.1380 and then 1.1420. Immediate support lies at 1.1300, 1.1270 and then 1.1240. The Euro has climbed from its May lows under 1.0800. The question from here is can it sustain itself higher? The weight of a speculative long market, which needs to correct, will keep the shared currency capped. Look to sell into any rallies with a likely range today of 1.1150-1.1250.
