Summary: Risk-On turned to risk-off in both stock and FX markets on growing fears of ever-rising Covid-19 infections globally. New cases in the US rose further with large parts of the US reporting tens of thousands of new coronavirus infections according to Reuters news. The US Dollar rallied against all its rivals bar the British Pound, buoyed by a UK Independent report that Britain is set to announce a GBP 2 billion funding for thousands of jobs. Brazil’s Real turned lower from earlier gains on caution about the alarming speed of the coronavirus after the country’s president, Jair Bolsonaro, tested positive for the virus. Mexico’s Peso fell 2% against the Dollar as the country’s new death toll from the Covid-19 pandemic yesterday rose to the third highest, behind the US and Brazil. The Australian Dollar slumped to an overnight low at 0.6922 after failing to test 0.70 cents. AUD/USD closed at 0.6945. Victorian Premier Daniel Andrews announced at a press conference last night that Melbourne will re-enter stage three lockdown for 6 weeks effective midnight tonight as coronavirus cases continue to spike in the country’s second largest state. Victoria recorded 191 new cases of Covid-19 yesterday, the highest single-day increase since the start of the pandemic. Sterling rallied to close 0.35% higher against the Greenback at 1.2540 after hitting an overnight high of 1.25922 following the Independent news report. The Euro retreated 0.34% to 1.1275 from yesterday’s opening of 1.1310 on the broad-based US Dollar’s strength. The latest Commitment of Traders/CFTC report for the week ended June 30 “saw buyers return to the Greenback for the first time in six weeks” according to Saxo Bank. Much of the USD buying was due to a 16% reduction of net Euro longs. The USD/CAD pair climbed 0.40% to 1.3603 from 1.3545. Against the Yen, the Dollar was modestly higher at 107.55 (107.38). Wall Street stocks fell. The DOW was down 1.41% to 25,900 (26,285). The S&P 500 lost 1% to 3,147 (3,178). The yield on the key US 10-year treasury dropped 4 basis points to 0.64%.
Data released yesterday saw Japan’s Household Spending slump -16.2%, lower than forecasts at -11.8%. Germany’s Industrial Production in June climbed 7.8% from May’s -17.5% but missed expectations at 11.0%. Canada’s IVEY PMI rose to 58.2, bettering forecasts at 50.2 and a previous 39.1. US JOLTS Job Openings climbed to 5.4 million, beating expectations for a rise of 4.80 million.
On the Lookout: The alarming rise of Covid-19 cases in different hotspots around the world takes the spotlight in the markets today. The US recorded new highs in Covid-19 cases and new deaths. Total infections have climbed above 3 million (3.087 million). Infections hit a record in the state of Texas. Bloomberg reported that Iran suffered its deadliest day while Hongkong reported the largest number of local transmission cases in almost three months. Markets will continue to monitor these developments as well as the next support measures from various governments and central banks. The search for a vaccine has also continued to ramp higher. Last night, Novavax Inc., one of the front-runners in the race to develop a vaccine, was awarded USD 1.6 billion in government funding to support large-scale manufacturing according to the Bloomberg news.
Today’s data calendar is light. Asia kicks off with Japan’s Bank Lending (annual), Current Account and Economic Watchers Sentiment reports. European reports follow with Switzerland’s Unemployment rate, and the European Union’s Economic Forecasts. ECB Vice-President de Guindos is speaking at a function.
Trading Perspective: Given the market’s risk-off sentiment, the Dollar should keep its overall bid against its rivals. We look at the current market’s speculative positioning in today’s report. According to Saxo Bank, the latest Commitment of Traders/CFTC report for the week ended June 30, US Dollar buying rose for the first time in six weeks.
The Greenback strengthened against all ten IMM currencies during that week. Net speculators cut their net total bearish Dollar bets by 16% to USD15.1 billion, the first week of USD buying in six. Most of that reduction resulted from a reduction in net Euro longs by 16% (EUR 2.4 billion) after hitting a 2-year high. The other notable change was in the Australian Dollar which saw further short covering with net speculative Aussie shorts to the smallest total in over two years. We look at both currencies in their reports below.
AUD/USD – Retreats Off 0.70 cents Belted by Melbourne Lockdown
The Aussie Dollar retreated after failing to clear 0.70 cents yesterday after Victoria’s Premier Daniel Andrews reimposed stage 3 stay-at-home restriction in Melbourne, the country’s second largest state. Which means stay at home except for 4 reasons to leave, namely, essential shopping, giving or receiving medical care, attending work (if it cannot be done from home), and for exercise – within metropolitan Melbourne. As with the previous lockdown, cafes, restaurants, and bars will be allowed to open only for takeaway sales. Melbourne is Australia’s second largest city with almost 5 million people.
In other developments yesterday, the RBA kept interest rates unchanged. The RBA also said that the virus’ damage to the economy should be less severe than they feared but also showed their willingness to keep their policies easy for the time being.
Market positioning in the Aussie from the latest Commitment of Traders report (week ended 30 June) saw further cutting of Aussie short bets to -AUD 2,908 from the previous week’s -AUD 4,810 which is practically square. This is the smallest number of shorts and the least bearish in the Aussie in more than 2 years.
AUD/USD has immediate resistance at 0.6970 and 0.7000. Immediate support can be found at 0.6920 (overnight low 0.69221). The next support lies at 0.6890. With the speculative market practically square, there is more potential downside to the Battler should the market’s risk aversion stance extend. Look for a likely range today of 0.6870-0.6970. Prefer to sell rallies.
GBP/USD – Bucks Trend, Rises on Reports of New Stimulus, Brexit Hopes
Sterling rose against the US Dollar, bucking the overall stronger Greenback trend, finishing in New York at 1.2540 (1.2490 yesterday). The British Pound hit an overnight and near 3-week peak at 1.25922 before easing at the close. Britain’s Independent reported that UK Chancellor Sunak will announce a GBP 2 billion funding for hundreds of thousands of jobs to over “hundreds of thousands” of work placements. Hopes that UK and EU trade negotiators could find common grounds on a fishing issue in their Brexit talks also underpinned the British Pound.
In early Asian trade, Sterling rose modestly to its current 1.2563 from its 1.2542 NY close before settling at its current 1.2552. Immediate resistance lies at 1.2570 followed by 1.2600 and 1.2650. Immediate support can be found at 1.2520 followed by 1.2480 and 1.2430. Expect an initial choppy trading range between 1.2450 and 1.2600 given recent developments. Which will either be confirmed or denied. Prefer to sell rallies should the market retain a risk-off stance.