FX Dozes, Confined to Narrow Ranges; US Coronavirus Spread Grows

Michael Moran

Michael Moran is an experienced global markets professional who currently writes a daily markets commentary. Moran has traded currencies for over 30 years, having worked in dealing rooms of major banks all over the globe. He lives in Sydney with his wife, 5 children, 2 grandsons and another coming. He still loves trading and talking about the currency markets. All of them! Michael began his career as an assistant dealer in money markets and foreign exchange with Lloyds Bank. He has worked in Hongkong, Manila, Tokyo, Singapore and Sydney. He’s traded through the 1985 Plaza Accord, Paul Keating’s 1986 “banana republic” statement, the Asian Currency Crisis in 1997, and the 9/11 New York Twin Tower terrorist strike. He took the task of speaking to sales team of the banks he worked at (Lloyds, NAB, CBA) during the daily morning meetings. Other traders hated this job. But he developed a liking for commentating and putting forward his views on currencies, in the process helping others. Which he still does today. Moran wrote briefly for Invast Global before taking the position as senior analyst for Royal Financial Trading. He currently is a Responsible Manager in Compliance for Transferwise Ltd, Pty, a global money transfer firm where he advises the Treasury team. Having spent the last 10 years of his trading career managing the Emerging Markets and Asian currency desks of NAB and CBA, he formulates much of his market analysis from their movements. His favourite description for global markets today comes a 1968 hit tune from the group Blood, Sweat and Tears – “What goes up, must come down, spinning wheel got to go round.”

California lockdown

FX Dozes, Confined to Narrow Ranges; US Coronavirus Spread Grows

July 6, 2020

Summary: Currencies were confined to narrow ranges on Friday with US markets closed in observance of America’s Independence Day. The Dollar Index (USD/DXY) a favoured gauge of the Greenback against a basket of 6 major currencies, eased to 97.152 from 97.220. Meantime the coronavirus resurgence in the United States continued unabated. Rising cases in several US states dampened the positive effects if a strong US payrolls report released Thursday. Florida and Texas both hit record highs for new coronavirus cases. Rising Covid-19 cases have started to affect businesses like restaurants where bookings appeared to be recovering since they fell to zero in late March and April. However, according to data from reservation service Open Table, there have been recent declines in restaurant bookings due to the rising virus cases. The Euro was little changed at 1.1248 from 1.1240 despite comments from ECB Head Christine Lagarde that the ECB will need to keep its monetary policy exceptionally loose. Sterling closed a touch lower to 1.2482 (1.2468). The European Union and the Britain committed to another round of Brexit talks this coming weekend. In quiet FX trade, the Australian Dollar rose to 0.6940 from 0.6925 even as new Covid-19 cases in the second most populous state of Victoria continued to climb over the weekend. Against the Yen, the Dollar finished dead flat at 107.50 (107.50). The US Dollar edged lower against the Canadian Loonie to 1.3550 from 1.3570 Friday. European stocks and US futures slipped. US S&P 500 futures were 0.33% lower to 3,125 from 3,135. DOW Futures declined 0.43% to 25,750 from 25,855 Friday. US Treasury markets were closed on Friday while global bond yields elsewhere were lower. Germany’s 10-year Bund yield dipped 3 basis points to -0.43%. Japan’s 10-year JGB rate was last at 0.02% (0.03% Friday).

CNBC.Com US Restaurant Bookings Chart - 06 July 2020
CNBC.Com US Restaurant Bookings Chart – 06 July 2020

Data released Friday saw Australia’s June Retail Sales climb 16.9%, beating forecasts at 16.3%.  China’s Caixin Services PMI rose in June to 58.4 from the previous month’s 55.0 beating expectations of 53.0. Euro area Services PMI’s were mostly up, Spain rose to 50.2, bettering forecasts at 46.0 while Italy’s Services PMI rose to 46.4 from 28.9 but missed forecasts at 46.9. French Services PMI climbed to 50.7, beating expectations of 50.3. The Eurozone’s Final Services PMI rose to 48.3 from 47.3, bettering forecasts at 47.3. Germany’s Final Manufacturing PMI rose to 47.3 from a previous 45.8, beating expectations of 45.8. The UK’s Final Services PMI virtually matched forecasts at 47.1 (47.0).

On the Lookout: Expect a slow start in Asia today with a light economic calendar today. New Zealand kicks off with its ANZ Commodity Price Index for June. Australia’s University of Melbourne releases its June TD Securities Inflation report followed by ANZ Job Ads for June. European reports start with Germany’s June Factor Orders. Spain follows with its Industrial Output data. The Eurozone Sentix Investor Confidence Survey and Eurozone Retail Sales follows next. The UK releases its Markit Construction PMI for June. The US returns with its June Markit Services and Composite PMI’s, and ISM Non-Manufacturing PMI. Finally, Canada releases its Bank of Canada Business Outlook Survey. Looking ahead to this week, the main events will be the RBA’s policy meeting and rate announcement tomorrow, as well as Germany’s Industrial Production. Wednesday sees the European Union’s Economic Forecasts. Traders will look to Thursday US Jobless Claims which last week rose more than economists expected. There are no forecasts for the number this week so far.

Trading Perspective: Traders will keep their focus on the rising pandemic figures in the US, which have exceeded 50,000 per day every day this month. Tensions between the US and China on another front are building which will also keep the market’s attention. China plans to hold military exercises  in Asia’s South China sea, one of the regions hottest spots. While the world is busy combating Covid-19, China has been fortifying its islands where they have runways and dozens of hangars for fighter aircraft, as well as anti-ship cruise missiles and missile defenses. The Wall Street Journal reported this weekend that the US is sending two aircraft carriers to the region with the US Navy set to hold some of the largest exercises in recent years in the South China sea.
While the Dollar ended on a weaker note on Friday, the safe-haven attraction will give the Greenback support. We look at a couple of currencies below.

AUD/USD – Holds Support Despite Victoria Outbreak, 0.6960 Resists

The Australian Dollar shrugged off the resurgence of Covid-19 infections in Victoria where nine high-rise public housing towers in Melbourne went into hard coronavirus lockdown. Which means residents will not be able to leave their units under almost any circumstances for at least 5 days. According to the Australian Business Insider, they will receive two weeks of rent relief, deliveries of food and activities, and hardship payments for those out of work. Business Insider said that the heavy police presence, about 500 officers per total shift, with a presence on most floors, “amplified concerns about overzealous policing of marginalised communities through the pandemic.” Victoria recorded 74 new cases yesterday, down from Saturday’s high of 108.

AUDUSD 1 Hour Chart - Daily FX - 06 July 2020
AUDUSD 1 Hour Chart – Daily FX – 06 July 2020

Today sees the release of Australia’s ANZ Job Advertisements for June. Tomorrow the RBA has its monetary policy meeting and rate announcement. Traders will look to see the RBA’s assessment for future guidance given the recent surge in coronavirus cases and the lockdown response in Melbourne.

AUD/USD closed in New York at 0.6945 (0.6925). The overnight high traded for the Battler was 0.69477. Immediate resistance is found at 0.6960 followed by 0.7000. Immediate support can be found at 0.6920 followed by 0.6880. Look for consolidation today in a likely range of 0.6910/70. Prefer to sell rallies.

EUR/USD – Sideways in Dull Trade, 1.1300 Resists

The Euro finished in late New York little changed at 1.1245 from 1.1240 on Friday. Trading was dull with the shared currency moving sideways within a narrow range of 1.12192 and 1.12517. Euro area Services PMI data released Friday were mostly upbeat, bettering forecasts. On Friday, ECB President Christine Lagarde said that the EU will face 2 years of downward pressures on prices due to the coronavirus pandemic and that the European Central Bank will need to keep its monetary policy exceptionally loose.  Today’s economic data sees the release of Germany’s Factory Orders, Eurozone Retail Sales and Eurozone Sentix Investor Confidence Index.

EURUSD 1 Hour Chart - Daily FX - 06 July 2020
EURUSD 1 Hour Chart – Daily FX – 06 July 2020

EUR/USD has immediate resistance at 1.1260 followed by 1.1300. Immediate support can be found at 1.1220 and 1.1170. Prefer to sell rallies in a likely range today of 1.1210-1.1270.

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