Summary: The battle for risk continued with markets finishing on a cautious note as the number of new coronavirus cases around the world grew. In the United States, new Covid-19 infections hit 37,000 which is their biggest increase ever. Reports that US regulators were prepared to relax financial rules that would free up capital from the biggest banks saw financial stocks rally before falling back after stress test results in volatile trade. FX meantime was more subdued. The Dollar Index (USD/DXY) a favourite gauge of the Greenback’s value against a basket of 6 major currencies was up 0.24% to 97.394 (97.232). Which was mostly due to a 0.28% fall in the Euro to 1.1217 (1.1252 yesterday). The Australian Dollar outperformed, climbing 0.45% to 0.6890 from 0.6850 shrugging off the news that Australia posted its largest one-day increase in Covid-19 cases in 2 months. Australia’s increase of 37 new cases paled in comparison though to that of the US which was 32,300+ at the latest count. Sterling ended little changed at 1.24127 (1.2420 yesterday). The USD/JPY pair was modestly higher to 107.15 (107.07). New Zealand’s Dollar, the Kiwi rebounded off its lows at 0.6400 to 0.6432. USD/CAD was flat at 1.3645 (1.3640) despite a bounce in Crude Oil prices. Brent Crude climbed to USD 41.50 (USD 40.50 yesterday). The Greenback finished mixed against the Emerging Market currencies. The DOW was at 25,700 (25,600 yesterday) while the S&P 500 was at 3,085 (3,065 yesterday). Key US 10-year bond yield was at 0.69% (0.68% yesterday). Germany’s 10-year Bund yielded -0.47% from yesterday’s -0.45%. Data released yesterday saw New Zealand’s June Trade Surplus ease to +NZD 1.253 billion from May’s +NZD 1.339 billion which was revised up. Germany’s GFK Consumer Climate Index in June saw a -9.6 print, bettering forecasts of -11.7. US Durable Goods Orders beat expectations of 10.3%, coming out at 15.8%. Core DGO rose to 4.0%, bettering forecasts of 2.4%. The US Q1 Final GDP matched forecasts at -5.0%. Weekly Unemployment Claims were at 1.48 billion, missing forecasts at 1.32 billion.
On the Lookout: Expect a cautious and slow start to Asia today with China celebrating its Dragon Boat Festival holiday. FX will consolidate at current levels with the US Dollar retaining its overall bid.
The spotlight will continue to fall on the resurgence of Covid-19 as fears mount on the second wave of infections in the US and the rest of the world. Europe also saw a rise in new cases. India, Brazil and Mexico’s coronavirus cases continue to climb among the emerging economies. Bank of Japan Governor Haruhiko Kuroda just came across the wires, commenting that Covid-19 has a severe impact on countries all over the world and Japan is no exception.
Today’s main event is a speech from European Central Bank head Christine Lagarde in the EBLC Northern Light online Summit 2020 on the World Economy. Expect fireworks from the former IMF President. The economic data calendar is light. Japan kicks off with its Tokyo Core CPI report. Europe sees Spain’s May Retail Sales report. The Bank of England releases its Quarterly Bulletin. US data scheduled for release follow with US Core PCE Price Index, Personal Spending, Personal Income and the University of Michigan’s Consumer Sentiment report.
Trading Perspective: Expect FX to consolidate within the recent ranges in Asia today. The US Dollar will keep its bid while risk appetite remains shaky. With the spotlight back on the resurgence of Covid-19, traders will monitor developments. Other risk factors, which should also be USD supportive are the trade tensions between the US and European Union. We take a look at some individual currencies.
EUR/USD – Limp Rebound Leaves Sees More Downside Potential
The Euro managed to climb off its overnight lows at 1.11904 to finish above the 1.1200 level to 1.1217. The shared currency’s trade was subdued after its initial slid from yesterday’s 1.1250 opening. EUR/USD traded to an overnight high at 1.12597. The net speculative long Euro market positioning is keeping the Euro from advancing. The ongoing trade tensions between the US and the European Union will also cap any meaningful gains in the shared currency. With limited topside, the downside potential is gaining. Only a broad-based weaker US Dollar will support the Euro.
EUR/USD has immediate resistance at 1.1230 followed by 1.1260 and 1.12290. Immediate support lies at 1.1190 followed by 1.1160 and 1.1130. Look for the Euro to consolidate within a likely range of 1.1170-1.1220. Prefer to sell Euro rallies, the currency has lower to go.
AUD/USD – Recovery Off Lows Capped by Covid-19 Fears, Trade Tensions
The Australian Dollar recovered off its overnight lows at 0.68472 to finish in New York at 0.6890, best performer in FX. The Aussie Battle shrugged off the rise in new Covid-19 cases at 37 (as at latest count by the Coronavirus Worldometer Update). This is the largest increase in infections in two months. In relative terms though, it pales in comparison to the rise in the US and other countries. With no domestic data releases scheduled for today and the absence of China due to a holiday, expect the Aussie to consolidate at these lower ranges.
AUD/USD has immediate resistance at 0.6900 followed by 0.6930 and 0.6960. Immediate support can be found at 0.6870 and then 0.6840. Expect the Battler to trade within a likely 0.6860-0.6930 range today. Prefer to sell rallies toward 0.6950. The Aussie is not yet ready to see a sustained climb.
USD/CAD – Steadies, Readying for a Fresh Attempt Higher
The USD/CAD pair steadied to close modestly higher in New York at 1.3645 from 1.3635 yesterday. A rise in Brent Crude Oil prices to USD 41.50 (USD 40.50) and WTI to USD 39.15 (USD 38.10), the Loonie finished with a lacklustre performance against the Greenback. The safe-haven attraction to the US Dollar kept the Loonie at bay. Canada’s Covid-19 new cases also increased by 334 with 17 new deaths reported.
USD/CAD has immediate resistance at 1.3670 (overnight high) followed by 1.3700 and 1.3750. Immediate support can be found at 1.3610 (overnight low 1.36076) followed by 1.3580. Look for the USD/CAD pair to consolidate with a likely range today of 1.3620-1.3720. The USD/CAD is likely headed north, look to buy dips.