Summary: A degree of volatility returned to FX trading although the end-result was a flat finish to the Dollar Index (USD/DXY) which is a favoured gauge of the Greenback’s value against a basket of 6 major currencies. USD/DXY finished at 96.58, little-changed from yesterday’s 96.65. The battle for risk continued with the alarming number of new coronavirus cases in many US states forcing California’s Governor to order indoor activities to close statewide. Earlier, CNBC reported that US health officials expect drug makers to produce a coronavirus vaccine by the end of the northern hemisphere summer boosted equities and weighed on the Dollar. The Euro advanced 0.4% against the Greenback to 1.1345 (1.1305) after peaking at 1.1375. Sterling, however reversed lower to finish at 1.2555 (1.2635) after 4 straight days of gains. Brexit talks between the EU and the UK have yet to produce any breakthroughs. The Dollar rallied against the Japanese Yen to 107.25 from 106.95 yesterday. Against the Canadian Loonie, the Dollar was higher to 1.3612 from 1.3585. The Australian Dollar was modestly lower to 0.6942 from 0.6955 yesterday. The CBOE VIX (Fear) Index jumped 18% to 32.19, its highest since June 26. Wall Street stocks finished mixed after initially climbing. The DOW ended flat at 26,090. (26,100) while the S&P 500 lost 0.94% to 3,158 (3,192).
The benchmark US 10-year bond yield was at 0.62% from 0.64% yesterday.
Data released saw the US Federal Budget deficit in June climb to an all-time high at -USD 864.1 billion from -USD 398.8 billion in May and higher than expectations of -USD 860.0 billion. There were no other major data releases yesterday.
On the Lookout: Today sees a data deluge which should set the tone for FX and equities. A few minutes ago, New Zealand’s Visitor Arrivals in June rose 82.3% from May’s drop at -98.9%. The Kiwi was little changed at 0.6540 following the release. The UK’s BRC Retail Sales Monitor for June rose to 10.9% in June from 7.9% in May. Sterling hardly budged.
Australia kicks off with its NAB (National Australia Bank) Business Confidence Index. China follows with its Trade Balance denominated in CNY and USD. The breakdown of Imports and Exports will be scrutinised. Japan rounds off Asian data with its Revised Industrial Production report. European economic reports kick off with Germany’s Final June CPI. The UK follows next with its June GDP, Construction Output, Goods Trade Balance, Industrial Production and Manufacturing Production data. Swiss PPI follows. Finally, Eurozone Industrial Production, ZEW Economic Sentiment and Germany’s ZEW Economic Sentiment round up Europe’s data contribution.
The US sees its Headline and Core CPI report for June.
Trading Perspective: Traders will be monitoring China’s Trade Balance and the breakdown of imports and exports as well UK GDP, Manufacturing Output, and the US CPI report.
The latest Commitment of Traders/CFTC report (week ended July 7) saw hedge funds and large speculators as small sellers of US Dollars. The holiday shortened week saw two main highlights. A build up of Euro long bets to multi-year highs and a net reduction of Aussie shorts to virtually zero.
What this all means is that the Euro has more room to turn lower. For the Aussie, it becomes a more evenly balanced out market and the recent rise in a second wave of COVID-19 cases in Victoria and parts of NSW will weigh on the currency. We look at the individual currencies.
AUD/USD – Limp Bounce, Rise in NSW Covid-19 Cases Weigh, China Data Next
The Australian Dollar limped to a modestly lower close at 0.6942 (0.6955) despite an overall weaker Greenback after failing to bounce off a 3-day low at 0.6920. Early this morning, the Australian Business Insider reported that NSW Premier Gladys Berejiklian said more restrictions are on the table following a recent spike in new Covid-19 cases at a pub in south of Sydney. A popular casino, the Star was fined AUD 5,000 for breaching public health orders. Australia’s Treasurer Josh Frydenberg said the country’s real unemployment rate was 13.3%, more than double the official figure.
The latest Commitment of Traders report saw net speculative AUD short bets trimmed further to total -AUD 694 contracts from the previous week’s -AUD 2,908 bets for the week ended 7 July. Which means that speculators are virtually square in the Australian Dollar. The pressure is for a lower Aussie given the above news. Traders will look to today’s release of Chinese trade data where the surplus is expected to ease.
AUD/USD has immediate support at 0.6920 followed by 0.6880. Immediate resistance can be found at 0.6990 (overnight high traded was 0.69932) followed by 0.7010. Look to sell rallies in a likely range today of 0.6870-0.6970.
EUR/USD – Further Advances Capped by Build in Spec Long Bets
The Euro was one of the currencies that advanced against the US Dollar, finishing with a gain of 0.42% to 1.1345 in New York. The shared currency benefited from the early rise in risk appetite which fizzled out as equities turned lower. Optimism continued to build on expectations that the EU-proposed recovery fund would be agreed upon by the European bloc. The continent is also weathering the second wave of coronavirus spikes better than the US and the rest of the world so far.
One of the two highlights of the Commitment of Traders/CFTC report from Saxo Bank for the week ended 7 July was a rise in net speculative Euro long bets. Speculators increased their net long Euro bets to +EUR 103,597 contracts from the previous week’s +EUR 98,955. Which is still hovering at highs not seen since early 2018. This will keep the Euro from any meaningful gains until this market positioning has a decent correction.
EUR/USD has immediate resistance at 1.1375 followed by 1.1400. Immediate support can be found at 1.1310 and 1.1280 followed by 1.1250. Look to sell rallies with a likely range today of 1.1270-1.1370.
NZD/USD – Kiwi Struggling to Make Headway, Bullish Sentiment Waning
The Kiwi finished 0.49% lower at 0.6540 from 0.6575 yesterday after further attempts to push the Bird above 0.66 cents failed amidst generally bullish sentiment. The NZD/USD pair has bounced off late June lows as sentiment turned bullish on the improved risk sentiment at the start of this month. The rise in global Covid-19 infections has not abated since then which has resulted in a shaky risk environment. Expectations of further official global stimulus efforts have yet to materialise.
Market positioning in the Kiwi, like its bigger cousin, the Aussie is small net short. The latest Commitment of Traders/CFTC report (week ended July 7) saw net speculative NZD shorts total -NZD 317 from the previous week’s +NZD 356. Which is close to square and leaves room for downside movement should risk appetite worsen.
NZD/USD traded to an overnight high at 0.65936. Immediate resistance lies at 0.6570 followed by 0.6600 (strong). Immediate support can be found at 0.6510 followed by 0.6480. Look to sell rallies with a likely range today of 0.6500-70.
