Daily Market Pulse

USD trading quietly as the week ends

10 minute read


The USD is trading mixed against the major currencies this morning. At present, the EUR attempts to come back, the GBP remains under pressure, and JPY and CAD trade in tight overnight ranges. The USD is getting some support from the falling equity markets as the Dow, S&P, and NASDAQ all traded lower yesterday. Traders will look to the economy this morning, as US CPI came in at 0.4%, after last month’s 0.6%. Core CPI came in at 0.4% after last month’s 0.6%. Dow Futures indicates a positive opening of around 150 points, while the S&P and NASDAQ futures are also looking positive. Tech stocks seem to be leading the equity markets lower, as Facebook, Amazon, Apple, Netflix, Alphabet, and Microsoft all closed sharply lower on Thursday. While analysts are not ready to claim the bears have overtaken the bulls, as pressure continues, some analysts are giving the advantage to the bears. US Treasury yields are a bit higher this morning as traders reacted to a higher than expected jobless claims number. While the actual number, 884,000 filing for the first time was not that far off from the 850,000 expected, it was higher and continuing claims rose as well, coming in at 13.385 million, an increase of 93,000. The 10-year note was at 0.711% this morning, while the 30-year bond was trading at 1.474%. The USD is reacting to “outside” influences as ECB and Brexit will keep the pressure on the EUR and GBP. As expected, the mood in the market will be a bit somber this morning as traders remember the tragic events of September 11, 2001. 


EUR/USD is trying to hold onto overnight gains, underpinned by ECB’s modestly optimistic view on Eurozone's economy. Technically, the 50-day moving average has crossed both the 100 and 200-day moving averages, indicating an upward move. The single currency is a bit away from challenging key resistance levels and RSI at the moment is trading at 63, the highest level seen overnight. The EUR got a strong boost after not so dovish, rather hawkish ECB monetary policy update. As was widely expected, the European Central Bank left all the monetary policy measures unchanged in September and upgraded the near-term growth outlook. The ECB was upbeat about the economic developments and noted that the incoming data since the last policy meeting in July suggest a strong rebound in activity, broadly in line with expectations. Adding to this, the ECB President Christine Lagarde, during the post-meeting press conference, said that there was no need to overreact to the euro's recent appreciation, which pushed the pair to its highest level in over two years earlier this month. But just as quickly, ECB Chief Economist Philip Lane said that recent appreciation of the euro exchange rate dampens the inflation outlook. “Headline inflation is expected to remain persistently low over the medium term, notwithstanding a gradual pick-up over the projection horizon. Moreover, the outlook remains subject to high uncertainty and the balance of risks continues to be tilted to the downside.” These comments have kept traders from fully buying into the ECB comments made yesterday. EUR may remain better bid to end the week, as EUR/GBP is benefiting from the pressure exerted on the GBP.


GBP/USD continues to remain under pressure as Brexit concerns remain from and center and better than expected economic releases are being ignored. Technically, selling pressure continues as the pound is trading at overnight lows and continues to break through support levels. The currency pair is well below the moving averages at the moment and the RSI number having fallen below 30 overnight is now trading at 31. Growing fears of a hard Brexit continue as Britain unveiled draft legislation, which acknowledged that some powers conferred by the legislation might be inconsistent with international law. The European Union took a firm stance and threatened to pursue legal action against the UK over breach of the Brexit Withdrawal Agreement (BWA) if it doesn’t drop the so-called Internal Market Bill. In addition, the EU signaled that breaking the BWA will lead to a no-deal Brexit. Thursday's better-than-expected UK manufacturing data failed to impress the GBP bulls or provide any meaningful impetus to the pound. Separately, the monthly UK GDP report showed that the economy recorded a growth of 6.6% in July, reaffirming a continued rebound amid the further reopening of the economy. But traders either didn’t care or simply ignored the data. As the focus remains on Brexit, the inability to find support after the major sell-off may keep the bearish pressure on the GBP. 


USD/JPY had a quiet overnight trading range as the moving averages have almost come to rest upon each other. The currency pair is nearing week highs as improving risk sentiment has come to undermine the safe-haven JPY trade. As the USD remains a bit pressured over doubts regarding the next stimulus package, we could see some traders return to the JPY during the trading day. Technically, the currency pair is trading slightly above the moving averages, and RSI is neutral at 56. Japan’s Foreign Minister Toshimitsu Motegi indicated he will speak to UK Trade Minister Liz Truss today and conclude a post-Brexit trade agreement between Japan and the UK. That agreement is expected to be signed just before Prime Minister Shinzo Abe steps down on September 15 for health reasons. The bilateral trade agreement is expected to largely replicate the Japan-EU agreement. UK expects to deal to increase trade with Japan by around GBP 15B a year in the long run. According to the British Trade Department, UK businesses will benefit from tariff-free trade on 99 % of exports to Japan after the trade deal. 


USD/CAD is trading in the middle of its overnight range, tasing below the 50 and 100-day moving averages, but above the 200-day moving average. The 50-day is looking to cross the 100-day on the downside, but that has not yet occurred and RSI is moving higher from overnight lows, trading at present at 46. Oil prices continue to remain under pressure adding to the woes of the loonie. Brent crude was down $0.18 at $39.88 per barrel, after falling 2% on Thursday and US West Texas Intermediate crude was down $0.14 to $37.16, after also falling 2% on Thursday. Both oil indices are headed for the second week of declines, having fallen around 6.5% during the week. As oil goes, so goes the loonie. Concerns over the coronavirus pandemic and the possible second outbreak creating havoc on the US economy will keep the pressure on oil prices in the near term. On the economic front, at the 53rd ASEAN Ministerial Meeting, ASEAN and Canada agreed to soon elevate their dialogue relationship to a Strategic Partnership. Canadian Foreign Minister François-Philippe Champagne expressed his support for ASEAN's central role in the dynamically developing regional architecture. He announced a grant of approximately 10 million CAD for the Canada-ASEAN Scholarships and Educational Exchanges for Development (SEED) program. Canada is ASEAN's third-largest trade partner and one of the major economies of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). 


Rises in the prices of fruits and vegetables and goods pushed Mexican annual inflation in August to its highest level in 15 months, about half a percentage point above the rate the finance ministry says it will fall to by the end of the year. Consumer prices rose 4.05% in the year through August, the highest since a reading of 4.28% in May 2019, the national statistics agency said on Wednesday. The reading was slightly higher than analysts forecast in a Reuters poll. However, Mexico’s central bank, which holds its next monetary policy meeting on Sept. 24, still has space for further rate cuts, deputy Governor Jonathan Heath said on a call hosted by Moody’s on Wednesday. The central bank, which has cut its benchmark lending rate by 375 basis points since August last year to 4.5%, targets consumer price inflation of 3%, with a one percentage point tolerance band above or below that figure. The finance ministry on Tuesday said inflation would end the year at 3.5% in its 2021 budget proposal delivered to Congress. Compared with the previous month, prices increased 0.39% in August, including a 2.97% jump in fruit and vegetable prices. The core price index, which strips out some volatile elements, rose 0.32% on the month. The core annual rate of inflation advanced to 3.97%.


Australia is standing up to China. It may be a harbinger of things to come as the world's smaller countries respond to the Asian economic superpower. For years, the Australian political and business establishment had a paramount goal, to protect and expand this natural resource powerhouse's booming exports to fast-growing China such as iron ore, coal, natural gas, wine, and more. Until COVID-19 struck, Australia had a 29-year run without a single recession as it sent its signature goods to the world's second-largest economy. Canberra's diplomacy came to focus on balancing the Chinese trade relationship with the nation's equally important defense alliance with the United States. But the paradigm through which the government of Prime Minister Scott Morrison now views China has shifted dramatically, people inside his government told Reuters. The relationship is no longer shaped just by trade, but by a stark view that Beijing poses a threat to Australia's democracy and national sovereignty. Discussions about China inside Morrison's cabinet now revolve around the need to preserve sovereignty and fend off Chinese efforts to sway Australian politics, two government sources told Reuters.


Brazilian retail sales in July surged to their highest level in almost six years, official figures showed on Thursday, as the continued easing of lockdown measures across the country fueled another strong monthly rebound in activity. The 5.2% rise in retail sales excluding cars and building materials last month was more than four times the median forecast of a 1.2% rise in a Reuters poll of economists, and the strongest July performance since statistics agency IBGE began the series in 2000. On an annual basis, sales rose 5.5% in July compared with the same month last year, statistics agency IBGE said, more than double the 2.2% rise economists in the Reuters poll had expected. This took the seasonally-adjusted sales volume index up through the 100.00 level to the highest since November 2014 and within a whisker of scaling the all-time peak from October that year. “As the index plunged from February to April, the base was very low and this recovery has brought all indicators to pre-pandemic levels,” said IBGE research manager Cristiano Santos. “Up to June, we were kind of making up for what had happened in the pandemic. But July saw strong growth,” he said. 


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