Equity markets are confused as the DOW and S&P ended yesterday’s session lower, while NASDAQ finishes up for the 7th time in the last 8 trading days. As we have continued to see recently, the move lower in equities usually points to a move higher in the USD. The return of some restrictions for economies could revive demand for the dollar as investors pull the plug on riskier asset classes or are merely taking profits from the previous day's trades. As coronavirus outbreaks rise in the US, positive economic numbers are being released. Initial jobless claims rose 1.314 million last week, compared to a Dow Jones estimate of 1.39 million. Continuing claims, those who have been collecting for at least two weeks, dropped 698,000 from a week ago to 18.06 million. One concerning note is that weekly claims have stayed above 1 million for 15 consecutive weeks as workers struggle to get back to their jobs amid rising coronavirus cases. One reason given by analysts for the resiliency in the equity markets is the expectation of another virus relief package and another round of stimulus checks. The dollar rallied from a four-week low on Thursday, as weaker U.S. stocks enhanced the currency’s safe-haven appeal for investors following a surge in new coronavirus cases and a U.S. Supreme Court ruling on President Donald Trump’s financial records. DOW Futures are lower this morning, pointing towards a negative opening of around 200 points. US Treasury yields are lower this morning, as traders monitor the health crisis and its impact on economic recovery. The 10-year note was trading at .5906%, and the 30-year bond was trading at 1.2803%. The roller coaster ride that the USD has had in recent weeks should continue as traders determine whether to take on the risk or fall back to USD safe-haven trades.
EUR/USD is trading near overnight highs as we begin the last trading day of the week. Eurozone finance ministers are meeting ahead of next week’s summit. Technically, the moving averages are converging and a breakthrough the 100 and 200-day moving averages by the 50-day moving average, could push the single currency lower during the day. EUR/USD has bounced off support levels overnight. Europe seems to have gotten control of the coronavirus as the continent looks towards recovery. Germany reported an improvement in trade. Their trade surplus nearly doubled in May with imports and exports rebounding after double-digit declines in April. With that said, the ECB remains vigilant as policymaker Villeroy has stated that the ECB is ready to be innovative with policy tools if needed. The European Central Bank meets next week and while they will be worried about economic risks in the US, data is improving with most countries in Eurozone maintaining a flat curve that will bolster economic activity. Pascal Donohue, Ireland’s Finance Minister, has been nominated as the President of the Eurogroup and it is hoped he will convince leaders to approve the recovery plan.
GBP/USD has had a bit of a roller coaster ride in overnight trading, testing support levels early on, and now pushing towards overnight highs. Technically, the pound is trading between the 50 and 100-day moving averages, with RSI levels in the mid-50s. Brexit talks continue to weigh on the pound as there are significant differences as talks are scheduled to continue next week in Brussels. The global flight to safety as coronavirus cases continue to rise could exert pressure on the pound, as there is no relevant market-moving economic data releases on the horizon. The pound should remain range bound during the North American trading day. Traders continue to monitor virus cases in Great Britain as the country moves cautiously towards re-opening.
USD/JPY is trading lower this morning as risk aversion is lending support to the JPY. Safe-haven trading has brought USD/JPY towards overnight lows as all moving averages have turned towards the downside. The surge in JPY buying has brought the RSI levels below 30 and at present, it sits at an oversold level of 25. If the sell-off continues, support levels are not very strong and the USD/JPY could be heading towards levels not seen since early March. The Kyoto news agency is reporting that Japan is discussing easing travel restrictions with 10 countries including China, South Korea, and Taiwan. Reuters also reported that Japanese PM Abe and Australian PM Morrison had a virtual summit and agreed to step up preparations to resume limited travel among business people. It was reported that they also discussed China and the new Hong Kong security law. With viral concerns rising in the US, expect pressure to remain on the USD/JPY.
USD/CAD is trading in the middle of its overnight range ahead of the release of Canadian employment data this morning. According to reports, Canada’s labor market may have recovered about one-third of the jobs lost due to the pandemic. The forecast has Canada adding 700,000 jobs in June, after adding 289,000 jobs in May. The unemployment rate is expected to drop from 13.7% in May to 12% in June. Oil prices are lower this morning and that is pressuring the loonie ahead of the employment numbers. Brent crude futures fell $0.25 to $42.10 per barrel and U.S. West Texas Intermediate futures fell $0.33 to $39.29 per barrel. As daily pandemic numbers continue to rise in the US, there is less demand, and oil inventories remain high. Analysts expect oil prices to remain pressured heading into the weekend. While the Canadian Dollar may get an initial boost from the employment release, the pressure of oil will subsequently push the loonie lower.
Trade war tensions between the US and China continue as the White House announced it will bar companies from government contracts that use products of Chinese companies such as Huawei and ZTE. The current level of the Yuan is not expected to be sustainable and has benefitted lately by the resurgence in the Chinese equity markets. Slowing growth in China will see the currency weaken over time. As the pandemic continues to worsen on a global scale and especially in the US, there will be more concern placed on risk sentiment, which will benefit the USD. GDP levels will show that the Chinese economy remains below normal levels.