Summary: Ongoing tensions between the US and China after an announcement late in the NY session that President Trump would hold a news conference today pertaining to latest developments surrounding Hong Kong and America’s relationship with China. The relationship between the globe’s two largest economies deteriorated further after China approved a new law that would reduce Hong Kong’s autonomy significantly. Risk appetite, already wavering for most of the day, soured. Wall Street stocks dropped, reversing earlier gains. The US Dollar rebounded off its lows against its rivals after falling overnight. Risk leading barometer, the Australian Dollar eased to 0.6623 from its NY close of 0.6635. The Euro took out the 1.1050 resistance level, climbing to 1.10936 overnight and near 2-month high before easing to 1.1077 (1.1007). Yesterday’s EC massive stimulus plan for Europe continued to boost the shared currency. Sterling rebounded to 1.2323 from 1.2262 yesterday buoyed by the US Dollar’s weakness. The USD/CAD pair was little changed at 1.3775 (1.3765) despite a modest bounce in Oil prices. Against the haven Yen, the Dollar dipped to 107.65 from 107.77. USD/CNH (Dollar-Offshore Chinese Yuan) finished little-changed at 7.1710 from 7.1800 yesterday. The Dow reversed earlier gains to finish 0.6% lower at 25,401. (25,597). The S&P 500 was at 3,030 from 3,045, a loss of 0.2%. Global bond yields were mostly flat.
Data released yesterday saw Australia’s Private Capital Expenditure better forecasts at -1.6% against -2.6%. Germany’s Preliminary CPI fell to -0.1% from 0.4%, and expectations of 0.1%. Canada’s Current Account fell to -CAD11.1 billion from the previous month’s -CAD8.8 billion. US Headline Durable Goods Orders beat expectations of -19.0%, printing at -17.2%. Core Durable Goods Orders were also better at -7.4% against expectations of -14.8%. US Weekly Unemployment Claims were slightly higher at 2.213 million than median forecasts at 2.1 million. US Preliminary Q1 GDP fell to -5.0% missing forecasts at -4.8%.
On the Lookout: Risk sentiment remained fragile into early Asia with markets awaiting President Trump’s press conference on China at some stage today. Meantime expect the US Dollar to consolidate at these lower levels, more likely grinding higher. Events scheduled for today come in toward the close of US markets today. President Trump will hold a news conference in New York city, his first since July. Fed Chair Jerome Powell will participate in a virtual panel discussion at Princeton University’s Griswold Centre for Economic Policy Studies in New Jersey.
Today sees a data deluge amidst the simmering US-China tensions. Japan kicks off with a plethora of reports, Tokyo Core CPI, Japanese Unemployment Rate (April), April Retail Trade, Preliminary Industrial Production, Consumer Confidence, Housing Starts and Construction Orders. Australia follows with its April Private Sector Credit data. Euro area reports start with Germany’s April Retail Sales (m/m and y/y) and Import Prices. France reports its Q1 GDP, Consumer Spending (April), Producer Prices, and May Preliminary CPI. Italy reports on its Q1 GDP and Preliminary CPI (May). Switzerland follows with its KOF Leading Indicator (May). The Eurozone releases its Preliminary May CPI. The US releases its Core Personal Consumption Expenditure Price Index (April), Personal Income, Chicago Purchasing Manager’s Index, and Michigan Consumer Sentiment Index (May). Finally, Canada releases its Q1 GDP, April Industrial Production, March GDP (m/m), and Raw Material Price Index.
Trading Perspective: The battle for risk appetite and the US Dollar will continue to play out between escalating US-China tensions and hopes for the reopening of the world’s economies on easing restrictions from the coronavirus outbreak. Until then risk-off themes will be in play.
The Dollar Index (USD/DXY) fell 0.6% to 98.467 (98.963 yesterday), mainly on the back of the resurgent Euro. The shared currency faces a test today with the economic data releases from Germany, France, Italy and the Eurozone. Germany’s Retail Sales, Italy’s Q1 GDP and the Eurozone’s Preliminary CPI (May) will be closely monitored. We can expect fireworks for the last trading day in May. Happy days !
EUR/USD – Boosted by Massive Stimulus, Recovery Hopes; Capped at 1.1100
The Euro outperformed yet again boosted by the EC’s massive stimulus announcement which saw European equities climb to multi-week highs. The European Union’s plan to prop up the bloc’s coronavirus-hit economies with a EUR 750 billion recovery fund lifted the shared currency past the 1.1050 resistance mark. This morning’s announcement of a Trump press conference on China saw the EUR/USD halt its gains, steadying near its New York close at 1.1070.
Today sees a plethora of Euro area economic data releases. Germany’s Retail Sales, French and Italian Preliminary Q1 GDP, and the Eurozone’s Flash Headline and Core CPI data will be closely watched. Bear in mind today that the speculative long Euro bets are still quite large.
EUR/USD has immediate resistance at 1.1100 followed by 1.1130. A break above 1.1130 could see 1.1180. Immediate support can be found at 1.1040 followed by 1.1000 and 1.0970. Look to trade a likely 1.0980-1.1120 range today. Prefer to sell rallies.
AUD/USD – Rally Running Out of Steam, 0.6680 Cap, 0.6580 Support
The Aussie Battler’s rally halted at 0.66673 overnight as the market’s favourite risk barometer ran out of steam, slipping to 0.6635 in late New York. When the announcement that President Trump will hold a press conference on China hit the wires, AUD/USD slid to 0.6610 before settling at its current 0.6627. The Aussie Battler will continue to be driven by the market’s risk sentiment.
Yesterday RBA Governor Philip Lowe warned that Australian workers are headed for a “critical point” in September. Lowe referred to initial six-month limits placed on measures such as the government’s Jobkeeper program. Australian data released today is Australia’s Private Sector Credit which will not elicit much response from FX. Traders will await tonight’s US Core PCE Price Index and Personal Spending.
AUD/USD has immediate resistance at 0.6650 followed by 0.6680. A break above 0.6680 could see 0.6710. Immediate support can be found at 0.6610 followed by 0.6580. A sustained break at 0.6580 would see us back to 0.6530. Look to sell rallies in a likely trade today between 0.6550-0.6670.
USD/CAD – Loonie Rally Dented by Risk-Off, 1.3720 Base Forming
The Dollar closed little changed against the Canadian Loonie despite a bounce in Oil prices. Brent Crude Oil was 2% higher to USD 36.10 while West Texas Intermediate (WTI) gained 2.77% to USD 33.80. The USD/CAD pair closed at 1.3770 against yesterday’s 1.3765. Souring risk sentiment due to rising US-China tensions weighed on the Loonie. Overnight the USD/CAD slipped to a low at 1.37280 before rebounding to finish at 1.3775. The overnight high reached was 1.38223.
Today sees a plethora of Canadian economic data released. Canada’s March GDP number which captures the start of the lockdown is expected to slump to between -9.0% to -10% from February’s 0.0%. Any decline larger than 10% will see USD/CAD soar. A number less that -9.0% could see a dip back to the 1.3720 support. Any fall in risk sentiment from the US-China tiff will see a higher USD/CAD.
USD/CAD has immediate resistance at 1.3810 followed by 1.3850. Immediate support lies at 1.3740 and 1.3720. Look for a likely trading range today of 1.3750-1.3850. Prefer to buy dips.