EUR, CHF Extend Climb; AUD, NZD, EMS, Stocks Slump, Yen Up, Risk-Off

Summary: Risk aversion intensified as the coronavirus spread spiralled higher amidst rising US-China tensions and signs of stalling economic progress. FX responded by purchasing European (EUR, CHF) currencies while selling those associated with risk (AUD, NZD) and Emerging Markets (ZAR, THB, INR). Total US coronavirus cases climbed to 4.162 million with the worrying death count picking up speed above 147,000. The number of Americans filing for unemployment benefits rose for the first time in 4 months last week amid the resurgence of new virus cases. This contrasted with Europe’s ability to control the spread of Covid-19 and the prospect of expected further improvements in Eurozone data. European leaders managed to put their differences aside and agree a robust stimulus package while the US government struggles to get its act together in approving its much-awaited phase 4 stimulus package. The Euro extended its advance to close in New York at 1.1593, (1.1570 yesterday) after hitting a peak at 1.1627, its highest level since October 2018. Against the traditional haven sought Swiss Franc, the US Dollar dropped to 0.92456, a fresh four-month low before settling at 0.9253 in early Asia. FX risk leader, the Australian Dollar slumped 0.62% to 0.7097 (0.7140) on the risk-off mode. Australian Treasure Josh Frydenberg in his budget report yesterday forecast a massive A$ 184.5 billion deficit and a 3.75% contraction in GDP for the 2020/21 fiscal year. Against the Yen, the Greenback slid 0.32% to 106.87 (107.18) weighed by risk aversion and a lower US 10-year bond yield at 0.58% (0.60% yesterday).

FXFactory US Weekly Jobless Claims - 24 July 2020
FXFactory US Weekly Jobless Claims – 24 July 2020

The Dollar was higher against the Asian and Emerging Market currencies. The USD/ZAR (Dollar-South African Rand) pair rose 0.98% to 16.67 (16.47 yesterday). Against the Thai Baht, the Dollar was up 0.3% to 31.72 (31.57) while the USD/CNH pair steadied at 7.0110 (7.016 yesterday). Wall Street stocks slumped. The DOW closed 1.25% lower at 26,652 (27,000) while the S&P 500 fell to 3,237 from 3,277, down 1.15%.
Data released yesterday saw Australia’s NAB’s Quarterly Business Confidence Index slump to -15, underwhelming forecasts at -8. Eurozone Consumer Confidence missed forecasts at -12 with a -15 print. US Weekly Unemployment Claims rose to 1.416 million, beating median estimates of 1.3 million and the previous weeks downwardly revised 1.307 million (from 1.3 million). It was the first rise in Jobless Claims in nearly 4 months.

On the Lookout: Today sees a data dump with the release of global Flash Manufacturing and Services PMI’s. New Zealand kicked off just a few minutes ago with its Trade Balance. New Zealand’s Trade surplus dipped in June to +NZD 426 million from May’s +NZD 1.286 billion, missing median forecasts at +NZD 450 million. The Kiwi did not move from its current 0.6632 level on the release.
Australia follows with its Commonwealth Bank Preliminary Flash Manufacturing, Services and Composite PMI report. The UK is next with its GFK July Consumer Confidence report followed by UK Retail Sales for June. European data kick off with French, German and Eurozone Flash Manufacturing and Services data. The UK reports on its Flash Manufacturing and Services PMI’s. Belgium releases its Business Climate data. The US rounds up the day’s data releases with its Flash Manufacturing and Services PMI’s and New Home Sales.
Improvements are forecast for all the global PMI’s with the largest increases expected from Europe.

Trading Perspective: The Euro has outperformed in FX, climbing against the Greenback in the last nine out of ten days. In just a month’s time, EUR/USD has risen from 1.1200-1.1600. The catalyst for the last break up was the EU’s agreement of its stimulus package which is expected to cushion an improving Eurozone economy. Europe has largely been able to control its Covid-19 outbreak so far.

Worldometer - Coronavirus New Cases and New Deaths Table - 24 July 2020
Worldometer – Coronavirus New Cases and New Deaths Table – 24 July 2020

Today’s release of Euro area and Eurozone PMI’s are expected to show further improvements. While there is no denying that the Euro may be at the cusp of a bigger rally against the Greenback, the market positioning is well long of the shared currency, at the same time extremely bullish at current levels. Meantime, the market’s risk-off stance has seen the Aussie, Kiwi, Asian and EMS currencies fall versus the Greenback. These will eventually merge back together. The conclusion is that the hugely overbought EUR needs a much-needed correction in the short-term for the establishment of healthy medium-term uptrend. A disappointment in today’s Euro area and Eurozone PMI’s could be the catalyst. Another pressure area is that of a stronger USD against the risk and EM currencies. We examine a few currencies.

AUD/USD – Struggling to Maintain 0.7100 as Negative Forces Build

The Australian Dollar was the FX underperformer for the first time in awhile as negative forces on the Battler build. Despite pressure on the US Dollar from the European currencies, the slide in Asian and EM Currencies weighed on the Aussie. Yesterday’s release of the Australian government’s forecast of a massive cash deficit (AUD 184.5 billion) and a contraction in GDP was the first blow to the Battler. Australia’s coronavirus new cases continue to see increases with the largest amount of deaths in 3 months reported yesterday. The government has mandated the wearing of mask in Melbourne. Risk aversion from the escalation of tensions between China and the US kept the Aussie Dollar under pressure.

AUDUSD IG-DailyFX 1H Chart - 24 July 2020
AUDUSD IG-DailyFX 1H Chart – 24 July 2020

AUD/USD closed at 0.7097 from 0.7142 yesterday. The overnight high traded was 0.71618. Immediate resistance on the day lies at 0.7125 followed by 0.7150. Immediate support can be found at 0.7090 (overnight low traded was 0.70905) followed by 0.7060 and 0.7020. Look for a likely grind lower in the AUD/USD pair with a likely range today of 0.7040-0.7150. Sell rallies.

EUR/USD – Sun Shines in Europe, Bull’s Confidence Lifting; Correction?

The Euro outperformed FX, extending its gains for the 9th straight day as bullish sentiment continued to build for the shared currency, particularly in contrast with the US Dollar. EUR/USD jumped to hit a peak not seen since March 2018 at 1.1627. EUR/USD dipped back just under the 1.1600 level to 1.1595 at the New York close. The sun is shining brightly on Europe and the Eurozone following their agreement on a robust stimulus package which showed solidarity among the Continent’s leaders. Europe has also been able to contain the coronavirus spread better than the US, Latin and South America, Africa, and some areas of Asia. While that is the case, the Covid-19 pandemic is still very much alive and until a proven vaccine is discovered and ready to distribute, it is difficult to become overconfident. The latest Coronavirus World Odometer shows that Spain saw a spike in new cases above 2,600.

EURUSD Oanda-DailyFX 1H Chart - 24 July 2020
EURUSD Oanda-DailyFX 1H Chart – 24 July 2020

The shared currency has risen from 1.1200-1.1600 without a decent correction in 9 straight days. Speculative market positioning is at long Euro bets at their largest since 2018. And the bullish calls for the shared currency are getting bolder and bolder with 1.20 being touted. While that may be the case in the medium term, specially if the US Dollar continues to slide, we need to be wary of a short -term correction which may be around the corner. The catalyst could come from anywhere but today sees the release of Euro area and Eurozone Manufacturing and Services PMI’s, all expected to show improvements. Anything less than forecast could see the bulls start to trim their long Euro bets.

EUR/USD has immediate resistance at 1.1600 and 1.1630. Immediate support lies at 1.1560 followed by 1.1520 and 1.1470. Look to sell rallies within a likely range today of 1.1480-1.1620.

USD/CAD – Downtrend Slows on Oil Slide, Risk-Off Boosts Retracement Up

The US Dollar halted its 4-day slide against the Canadian Loonie to close at 1.3408 (1.3414 yesterday), little changed, after hitting a near five-week low at 1.33511. Brent Crude and WTI Oil prices slid over 2% while risk aversion rose in the asset markets. Canada’s recent economic numbers have been mixed. This week saw a rise in inflation in the CPI report, but Core and Headline Retail Sales rises were underwhelming (lower than forecast). The market’s risk-off stance and lower oil prices will put a floor under the USD/CAD pair particularly given the fall in the Australian, New Zealand and Emerging Market currencies.

USDCAD Oanda-DailyFX 1H Chart - 24 July 2020
USDCAD Oanda-DailyFX 1H Chart – 24 July 2020

USD/CAD has immediate support at 1.3400 followed by 1.3370 and then 1.3350. Immediate resistance can be found at 1.3430, 1.3460 and then 1.3500. Look to buy any USD/CAD dips with a likely range today of 1.3390-1.3510 today

 

 

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