Unabated Global Pandemic Rise Roils Risk, Dollar Climbs, Stocks Slump

Summary: Breaking news from Channel News Asia this morning that China imposed a strict lockdown in Hebei province to contain a fresh Covid-19 cluster yesterday will see a choppy start to trading in Asia today. Over the weekend, record new coronavirus cases in the US roiled risk appetite as concerns grew on a possible V-shaped economic rebound. The global death toll from the pandemic climbed over the half-a-million mark to a total of 503,149. The US Dollar extended its climb on safe-haven demand, finishing with modest gains. Wall Street stocks slumped. Sterling was the biggest loser in FX, plummeting 0.93% to 1.2336 (1.2416) with another round of Brexit talks scheduled today. German Chancellor Angela Merkel warned that the UK must “live with the consequences” of leaving the EU. The Euro traded mostly sideways, closing little changed at 1.1217 (1.1220). The Australian Dollar, risk leading currency, slipped 0.49% to 0.6860 (0.6887) on broad risk aversion. In early Asian trade, the USD/JPY pair slipped to 107.16 from its New York close at 107.23.
Wall Street stocks
slumped with major indices losing over 2%. The DOW closed at 25,040 from 25,700 Friday, for a loss of 2.42%. The S&P 500 lost 2.13% to 3,015 (3,085 Friday). Bond yields fell with the benchmark US 10-year yield down to 0.64% from 0.69%. In Europe, Germany’s 10-year Bund yielded –0.47% from -0.45% Friday. Japan’s 10-year JGB yield was flat at 0.00%.

Worldometer - Global Coronavirus Table - 29 June 2020
Worldometer – Global Coronavirus Table – 29 June 2020

released on Friday saw Tokyo Core CPI match forecasts at 0.2%. US Personal Spending rose to 8.2% in June, just short of expectations at 8.7%. Personal Income beat forecasts with a print at -4.2% against -6.0%. The revised University of Michigan Consumer Sentiment Index slipped to 78.1, against expectations of 79.1 and a previous 79.1.

On the Lookout: As we head into the June quarter-end close, expect highly volatile moves in FX. The market’s risk-off theme will dominate with traders monitoring the latest coronavirus updates, particularly in the new hotspots. This morning’s report that China imposed a strict lockdown in Hebei province to contain a fresh Covid-19 cluster yesterday will pressurise risk further.
Economic data releases today are light with the big event the US Payrolls report due on Thursday with the US away on Friday to celebrate its Independence Day (4th of July).
Today’s economic calendar kicks off with Japan’s May Retail Sales. Earlier New Zealand reported that its Total Filled Jobs (May) dropped to 0.8 million from April’s 2.16 million.
European reports start off with Spain’s June Preliminary CPI data, Germany’s June Preliminary CPI, Eurozone Consumer Confidence (June), Eurozone Business Climate and EZ Economic Sentiment Indicator. The UK reports its June Preliminary CPI, May Net Lending to Individuals and May Consumer Credit. Canada reports on its Industrial Price Product Index. Finally, the US reports its Pending Home Sales and Dallas Fed Manufacturing Index.

Trading Perspective: The US Dollar will retain its haven bid while coronavirus cases keep rising. New hot spots keeping popping up. Today’s Coronavirus Worldometer, which provides global Covid-19 live statistics and is sourced by official websites from world Ministries of Health and other Government institutions tells the story. Aside from the US, the table shows an alarming rise in new cases and new deaths in Brazil, India and Russia. Mexico’s total new deaths are the highest in the world. That said, the month and quarter end will see conditions thinned with choppy trade. We look at the various currencies in their reports.

AUD/USD – Pressured Lower, Choppy Trade Likely into Quarter-End

The Australian Dollar continued its grind lower pressured by the market’s overall risk-off stance on the unabated resurgence of Covid-19 cases around the globe led by the U.S. AUD/USD closed 0.49% lower to 0.6860 from Friday morning’s 0.6890. The overnight low traded for the Aussie Battler was 0.68407. The downside pressure for the Aussie remains but it will not be a one-way ticket south. Expect month, quarter and half year end pressure with rebalancing from hedge funds, pension funds and the like on their portfolios to see likely choppy trade on the Aussie.

AUD/USD FX Street Chart - 29 June 2020
AUD/USD FX Street Chart – 29 June 2020

AUD/USD has immediate support at 0.6840 followed by 0.6810 and 0.6780. Immediate resistance can be found at 0.6890 and 0.6920. The next resistance level lies at 0.6950. Look for a likely trading range today of 0.6800-0.6900. Prefer to sell rallies.

EUR/USD – Sideways Trade, Risk Aversion, Spec Long Bets Risk Lower

The Euro had a relatively quiet session in New York on Friday, trading sideways between 1.11954and 1.12394. The market’s negative risk sentiment kept the Euro’s topside limited. The rising number of Covid-19 cases in the US and new hotspots around the world like Brazil, Mexico and India kept EUR/USD pressurised. Strong buying interest under the 1.1200 level kept the shared currency from moving lower.

EURUSD FX Street Chart - 29 June 2020
EURUSD FX Street Chart – 29 June 2020

Next time round, it might be a different story. Bear in mind the speculative market positioning on the Euro remains short with total bets at multi-year highs. The European Union plans to bar travellers from the US, Russia and dozens of other countries considered risky due to their lack of control over the spread of the coronavirus outbreak. While Brexit concerns weighed more on the British Pound, any negative news will also weigh on the Euro. June 30 is the deadline for the UK to ask the EU for an extension of the Brexit transition period.

Month, quarter and half year end rebalancing of portfolios from hedge and pension funds, insurance companies and the like could see choppy trading in the shared currency. EUR/USD has immediate support at 1.1200 followed by 1.1170 and then 1.1120. Immediate resistance can be found at 1.1240 followed by 1.1280. Look to sell rallies with a likely trading range today of 1.1170-1.1270. Prefer to sell rallies.

USD/CAD – Topside Gains Momentum on Risk Aversion, Up, Up and Away?

The US Dollar gained momentum against the Canadian Loonie after trading sideways between 1.3450 and 1.3650 for the past two weeks. USD/CAD soared on Friday to an overnight high at 1.34156 before closing in New York at 1.3690 (1.3645 Friday morning). Risk aversion spurred on by the unabated rise in Covid-19 cases in the US and other hotspots around the world kept the USD/CAD pair bid. Last week markets shrugged off rating agency Fitch’s downgrade of Canada’s sovereign credit rating from AAA to AA.

USD/CAD FX Street Chart - 29 June 2020
USD/CAD FX Street Chart – 29 June 2020

USD/CAD has immediate resistance at 1.3720 followed by 1.3750 and 1.3800. Immediate support can be found at 1.3670 and 1.3620. This morning’s news on China’s latest shutdown due to a new Covid-19 cluster and the rising number of cases in some US states will keep the USD/CAD pair supported. With risk-off dominating sentiment, look for USD/CAD to trade higher in a likely range today of 1.3670-1.3820. Look to buy on dips.