FX Stuck, Stocks Gain Ground, Defy Continued Spike in Corona Cases

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 Stuck, Stocks Gain Ground, Defy Continued Spike in Coronavirus Cases

July 13, 2020

Summary: FX markets were mostly uninterested, trading within recent ranges to closed little changed on Friday. On balance, the US Dollar was modestly lower against most of its rivals. Equities rallied in Europe and the US after earlier declines in China and other Asian markets. The rally in risk assets were powered by last week’s rise in China’s stock market to highs not seen since 2018, as well as growing expectations of more official global policy support. Meantime the spike in new coronavirus cases in the US and other global hotspots continued unabated. US President Donald Trump donned a mask for the first time since the pandemic began, yielding to pressure from the World Health Organisation urging countries to step up control measures. Currency markets were content to trade in familiar ranges with US Dollar bears taking the initiative. The Dollar broke its support against the Yen at 107.00, falling to 106.636 before settling at 106.90 and 107.22 Friday morning. The Euro rallied to 1.1307 (1.1282 Friday) on better-than-expected French and Italian Industrial Production reports. Sterling extended its gains to 1.2640 from 1.2605 on Friday, hitting an overnight peak at 1.26642. The Australian Dollar failed to take advantage of the overall weaker US Dollar, finishing modestly lower to 0.6955 from 0.6962. Yesterday the State of Victoria added 273 new Covid-19 cases while fears that a second wave has hit Sydney rose on growing new infections from a pub in the city’s southwest. The Kiwi (New Zealand Dollar) up a touch to 0.6577 (0.6568 Friday). EM Currencies finished mixed to mildly higher against the Greenback.

Shanghai Stock Exchange Chart - CNBC - 13 July 2020
Shanghai Stock Exchange Chart – CNBC – 13 July 2020

Wall Street stocks rallied with the DOW climbing 1.56% to 26,112 (25,705) while the S&P 500 added 1.17% to 3,190 (3,155 Friday). US bond yields rose with the key 10-year rate closing at 0.64% (0.61%). Germany’s 10-year Bund Yield was last at -0.47% from -0.46% Friday.
Data released on Friday saw French Industrial Production climb 19.6% in June, beating expectations of a 15.2% rise. Italy’s Industrial Production rose 42.1%, beating median forecasts at 23.5% and a previous contraction at -20.5%. Canada’s Employment Change saw 952,900 Jobs created, bettering forecasts of a 700,000 rise. The Jobless rate though rose to 12.3%, worse than the 12.0% forecast. US Headline PPI fell in June to -0.2% against expectations of 0.4% while Core PPI was lower to -0.3%, against forecasts at 0.1%.

On the Lookout: Expect a slow start to Asia today with the focus on China’s stock market and the growing spike in new global coronavirus cases. Data releases today are light ahead of a big week of economic reports beginning tomorrow. The Earnings Season begins following the second quarter’s dramatic rebound in global financial markets. Tomorrow will see Chinese Foreign Direct Investment, Industrial Production, and Trade data. Further on in the week, the Bank of Japan policy meeting and rate announcement is on Wednesday.

Italy Industrial Production Chart - FXFactory - 13 July 2020
Italy Industrial Production Chart – FXFactory – 13 July 2020

The ECB has its rate policy meeting and Monetary Policy Statement on Thursday. Earlier today, New Zealand released its Food Price Inflation for June, up 0.5% from May’s -0.8%. The Kiwi did not budge. Japan reports on its Tertiary Industrial Account data. Europe see Germany’s WPI (Wholesale Price Index) for June. Bank of England Governor Bailey is due to speak at a Webinar on LIBOR (London Interbank Rate) as a webinar hosted by the Bank of England and US Federal Reserve. Later in the day, US New York Fed President and FOMC Member John Williams also speaks at the LIBOR webinar.

Trading Perspective: Expect Asia to extend the FX range trading with the Dollar under pressure first up. However, any further news reports regarding fresh spikes of Covid-19 cases in the US and elsewhere will see safe-haven support for the Greenback to drive the US currency higher. Markets will keep their ammunition dry ahead of this week’s economic data deluge and events (BOJ and ECB rate policy meetings and announcements). Traders will also monitor official efforts to support policy, which many believe is forthcoming. This will keep the Dollar under pressure. We take a look at a couple of currencies in the reports below.

EUR/USD – Holds Above 1.1300 on Upbeat Data, ECB Meeting Caps

The Euro managed to hold above the 1.1300 level, closing at 1.1307 in New York. Overnight high traded was 1.13548 while the Euro bottomed out at 1.12549. Friday’s rally in risk markets and better-than-expected Italian and French Industrial Production data buoyed the shared currency. Wall Street stocks defied the growing rise in Covid-19 cases in the United States with record fatalities in several states. Most traders were focussed on positives, expecting more official policy support as well as favourable financial conditions.

FXStreet EURUSD Chart - 13 July 2020
FXStreet EURUSD Chart – 13 July 2020

This week sees the ECB’s policy meeting and rate announcement on Thursday (10.30 pm, Sydney time, 16 July). The ECB is expected to leave its interest rate and bond-buying program unchanged. ECB President Christine Lagarde earlier hinted at inaction while casting doubt that European Union leaders would decide on the EU recovery fund in their summit which begins on Friday.
Don’t forget that speculative long Euro bets from last week’s COT report are currently at 2-year highs.

EUR/USD has immediate support at 1.1280 followed by 1.1250. Immediate resistance can be found at 1.1330 followed by 1.1370 (July 9 high). Look for a likely range today of 1.1230-1.1330. Prefer to sell rallies. The longs are getting impatient.

AUD/USD – 2ND Wave Rise in Sydney’s New Virus Infections Weigh, 0.70 Caps

The Australian Dollar was one of the few currencies that managed to fall against the Greenback, finishing modestly lower at 0.6952 in New York from 0.6965 Friday morning. On Friday the Aussie Battler briefly hit 0.7001 before edging lower. The overnight low was at 0.69237 in subdued trading. In early Asia, AUD/USD currently trades a touch lower to 0.6943.

FXStreet AUDUSD Chart - 13 July 2020
FXStreet AUDUSD Chart – 13 July 2020

The Australian Business Insider this morning reported that new cases surged by 273 yesterday in Victoria, the second-highest daily increase since the start of the pandemic. In Sydney, where the current situation is concerning, more than a thousand pub-goers have been asked to self-isolate after a Hotel pub in the city’s southeast saw 9 people who attended test positive for the coronavirus yesterday. While talks of a virus vaccine last week saw fears of a resurgence in Covid-19 shrugged off, the spike in new cases continue unabated.

AUD/USD has immediate support at 0.6920 followed by 0.6890. Immediate resistance can be found at 0.6970 (overnight high traded was 0.6969) followed by 0.7000 cents. Look for a likely trading range today of 0.6910-70. Prefer to sell rallies.

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