Promising Vaccine Trials, Stimulus Hopes Boost Risk, Stocks, Dollar Declines

Summary: More promising Covid-19 vaccine trials and hopes for further government stimulus measures sparked optimism and boosted risk. Wall Street stocks rallied after drugs from AstraZenica, and a partnership between Pfizer Inc and German biotech firm BioNTech were safely administered and induced immune responses The US Dollar slipped against all its major rivals with the British Pound outperforming in FX, up 0.92% to 1.2660 (1.2570 yesterday). Bank of England chief economist Andy Haldane said he believed the UK economy hit its floor around the middle of April and has recovered almost half of its losses since then. The Euro advanced 0.26% to finish at 1.1450 (1.1427) in late New York on expectations of a likely agreement by the EU on a recovery fund despite continued opposition from hardliners, the Frugal Four (Austria, Netherlands, Sweden, and Denmark). Finland has also resisted the package. Risk leader the Australian Dollar managed to gain 0.38% to 0.7017 (0.6995 yesterday) even as New South Wales, the country’s most populous state saw a further rise in coronavirus infections and the likelihood that tighter restrictions could be imposed. Risk-on sentiment saw the Dollar climb against the Japanese Yen, up 0.31% to 107.30 from 107.00 yesterday. The USD/CAD pair eased to 1.3535 from 1.3585 yesterday. Emerging Market currencies saw modest rallies against the Greenback. The DOW finished up 0.41% to 26,737 (26,670) while the S&P 500 gained 0.93% to 3,252 (3,225 yesterday).

Data released yesterday saw Japan’s Trade Deficit at -JPY 42 trillion, missing forecasts at -JPY 33 trillion. Germany’s PPI missed expectations with a 0.0% print against 0.2%.
In the US, total daily cases of the virus continued to rise rapidly. Daily deaths also increased by a total of 347. The state of Texas reported 62 people had died, lifting its total to 4,020 due to the pandemic.

On the Lookout: There is little in the way of economic data and events out today. Australia sees the RBA’s release of its June monetary policy meeting minutes (11.30 am Sydney time). Shortly after, (12.30 pm Sydney) RBA Governor Philip Lowe speaks at a video conference event on Covid-19 and the Labour situation. Japan releases its annual National Core CPI data for July followed by New Zealand’s Credit Card spending report. Switzerland kicks of European data with its Trade Balance. The UK sees its Public Sector Net Borrowing released. North America kicks off with Canada’s Headline and Core Retail Sales report for June. There are no major US economic reports due out today.

The spotlight will continue to fall on the recent promising vaccine trials and further stimulus measures to quell a spiralling of new virus infections all around the globe. The US is headed to hit a total of 4 million cases (3,948 million as at today). India, the world’s new hotspot recorded the unfortunate rise of 596 new deaths at latest count with total cases at 1.155 million, currently in third spot. Total global Covid-19 cases are approaching the 15 million mark, currently at 14.803 million.
Markets paid little heed to these statistics pinning hopes on a successful virus vaccine and expectations that the global governments will provide more stimulus measures to boost their economies. Optimism outweighs pessimism as the battle for risk continues.

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Trading Perspective: The Dollar continued to head south against most of the major currencies as risk appetite improved. Virus woes seem to have been thrown out of the window for now. Expect Asia to continue the trend of a weaker Greenback at the outset. Asian stocks look set for gains following Wall Street’s lead. The caveat for markets to open their eyes to the risks to the spiralling new virus cases may be the resulting deaths (unfortunately). On the coronavirus global worldometer, last updated a few hours ago, total deaths hit close to 612,000. New deaths in the US, Brazil and India totalled 1,530. A hit to risk appetite will see demand flow back into the Greenback.
The EU is expected to agree its much-awaited rescue package but with a watered-down version. Which may take away some of the Euro’s recent shine. We look at a couple of currencies below.

AUD/USD – Grinding Higher on Job Support, Virus Case Rise Caps at 0.7050

The Australian Dollar extended its gains against the US Dollar, grinding higher in early Asian trade to 0.7020 from its New York close of 0.7017. The Aussie Battler spent most of its trading under the 0.70 cent resistance level yesterday until risk assets climbed in New York. Traders shrugged off Australia’s latest rise of Covid-19 infections in New South Wales, the country’s largest state. Australian Prime Minister Scott Morrison is set to announce today that job support through the government’s JobKeeper and JobSeeker scheme will be extended, although both payments will be lower than they are currently.

Meantime, the Australian Business Insider reported that New South Wales is unlikely to go towards full lockdown, despite rising outbreaks, albeit small, in a few areas around Sydney.
Meantime, Victoria’s Premier Daniel Andrews acknowledged that 80% of the state’s rising coronavirus cases were transmitted in the workplace. These warning signs cannot be ignored forever and will keep the Aussie capped today.
The RBA’s latest meeting minutes are released today with Governor Philip Lowe speaking on the topic of Covid-19 and the Labour market. Could be interesting and definitely the spotlight for Aussie traders today.

AUD/USD has immediate resistance at 0.7050 and 0.7070. Immediate support can be found at 0.7000 followed by 0.6970 (overnight low 0.69727). We look to the market’s latest positioning data tomorrow after the last report saw total net Aussie short bets virtually flat. My gut tells me the price action this past week has turned the specs long. Look for a likely range today of 0.6960-0.7040. Prefer to sell rallies.

EUR/USD – Advances, EU Expected to Agree Recovery Fund, Risks Abound

The Euro extended its advance despite a delay in the European Union’s meeting for the purpose of agreeing a EUR 750 billion rescue package to deal with Europe’s economic slump due to Covid-19. EUR/USD finished in New York at 1.1450 (1.1427 yesterday), a gain of 0.38%. European Union leaders appeared close to an agreement on the massive stimulus plan after the chairman presented a proposal to bridge gaps between them. A group of four fiscally frugal northern nations (Denmark, Austria, the Netherlands, and Sweden) opposed the level of free grants within the proposed recovery fund of up to EUR 750 billion overall. EC Council President Charles Michel proposed that within the EUR 750 billion fund, 390 billion should be in non-repayable grants, down from EUR 500 billion originally proposed (which the frugal four opposed), with the rest in repayable loans.

Markets have been bullish on the Euro which has rallied remarkably from its lowest point in March near 1.0650. This morning early Asia continues to drive the shared currency up, settling at 1.1456 as this is written. Market positioning in the Euro remains long at multi-year highs. The immediate resistance level at 1.1470 should cap any short-term gains until the EU formally agree on a package. The next resistance level is found at 1.1500. Immediate support can be found at 1.1420 followed by 1.1380. Look for a likely trading range of 1.1385-1.1465 today. Prefer to sell into any rallies.