Daily Market Pulse

USD may benefit from safe-haven buying

7 minute read


Another rocky day trading yesterday as the DOW finally fell into negative territory for the first time this week, falling 135 points. Initial jobless claims showed that 1.3 million Americans filed for unemployment last week, which was a little higher than the DOW JONES estimate of 1.25 million first time appliers. More importantly, this is the 16th straight week where the number of initial claims was above 1 million. On the other hand, June’s retail sales came in better than expected rising 7.5%, exceeding the 5.2% increase that was expected. This number follows the May release which showed retail sales growing 17.7%, the largest reading on record. So, what does today bring? The USD has traded within yesterday’s range overnight in quiet trading as we reach the end of the week. After yesterday’s move into negative territory, DOW Futures are flat ahead of Friday’s opening. As coronavirus cases continue to rise in the US, markets are becoming more nervous as the possibility of further shutdowns becomes more likely. New York Fed President Williams was quoted yesterday saying he expected “continued period of economic recovery” in the US during the second half of 2020. The two reasons for this are businesses struggling to attain revenue and governments struggling without tax revenue. US Treasury yields are lower due to the increase in viral cases. The 10-year note is trading at 0.6037%, while the 30-year bond is trading at 1.2975%. It looks like another down day for the US equity markets as concerns over the increase in coronavirus cases has weighed a bit on risk sentiment. Possible safe-haven buying could benefit the USD in trading today.


EUR/USD is trading just below overnight highs. Technically, the single currency has moved above the 50, 100, and 200-day moving averages and it seems the EUR bulls are in the driver’s seat. Resistance is close at the June overnight high and a break there could see so renewed buying. RSI is currently at 58. The European Central Bank at yesterday’s monetary policy meeting decided to maintain the status quo and left key interest rates unchanged. Focus now shifts from the ECB decision to the critical EU Summit, where leaders will try to thrash out an economic response to coronavirus. Mark Rutte, the Prime Minister of the Netherlands, said that he sees a less than 50% chance of a deal this weekend, lowering already depressed expectations. Rutte is the unofficial leader of the "Frugal Four" – a group that also consists of Austria, Denmark, and Sweden, who object to the EU Commission's recovery fund's basic principles that are backed by all other countries, including Germany. The four rich nations are reluctant to sign off on a plan which includes mutually funded grants worth €500 billion. On the other side of the fence, Italy is hoping for agreement on a deal as soon as possible. The eurozone's third-largest economy had already struggled to grow before the coronavirus crisis. The euro has the potential to rise if the first face-to-face discussion results in any kind of agreement.


GBP/USD is trading in the middle of its overnight range. Technical momentum is slightly negative as moving averages converge, and the currency has slipped below the averages. RSI level is at 44. The only positive news for the pound this morning seems to be the easing of the Leicester lockdown as the virus in the city seems to have improved. Overnight, UK authorities revealed that Russia has been trying to steal coronavirus vaccine research and that Russia also attempted to intervene in Britain's 2019 elections. This news is dominating the British press this morning. That news was revealed after Prime Minister Boris Johnson decided to phase out the usage of Huawei's 5G equipment. The Chinese telecoms giant is suspected of close ties to the military. Worsening relations with large countries as the UK leaves the EU may weigh on the British economy and the pound. Adding to the pound’s woes are comments from Andrew Bailey, Governor of the Bank of England, who told MPs that interest rates will remain low for at least two years. Bailey speaks later today and may comment on negative borrowing costs, a topic that previously pounded the pound. Overall, darkening clouds point to more room to the downside than to the upside.


USD/JPY is a bit lower this morning as traders eye US-China relations. The move into safe-haven JPY trades has not occurred yet, but technically the currency is consolidating around the moving averages as sliding US bond yields have prompted some selling. RSI level is neutral at 49, and traders are waiting for the US equity market opening before making decisions. Economic data out of the US this morning could trigger risk sentiment. Housing market data and Michigan Consumer Sentiment will be watched closely. On the coronavirus front, Tokyo also reported a record amount of new cases as the number rose to 293 after the previous day’s record of 284. Earlier in the week, the Asian Nikkei Review reported that the coronavirus panel raised the infection alert to the highest level and according to Reuters, Tokyo Governor Koike was urging citizens to refrain from leaving Tokyo if possible. 


USD/CAD is higher this morning as oil prices fall amid concerns of lessening fuel demand. Technically, USD/CAD is trading above the moving averages and the 50-day is coming close to crossing the 100-day, indicating a bullish move. RSI is rising, currently trading near the 60 level. Brent crude futures fell $0.26 to $43.11 a barrel and U.S. West Texas Intermediate crude futures fell $0.23 to $40.52. As virus cases rise around the globe, and especially in the U.S., the surge is slowing the use of fuel and analysts are now saying it could take years before consumption returns to the levels previous to the pandemic. Employment if Canada increases by slightly over 1 million people from May to June, according to data published by the ADP research institute. According to the report, the labor market posted employment growth as the result of businesses reopening and people returning to work. While positive, the news failed to affect the Canadian Dollar which at the moment seems to be at the mercy of oil prices.


According to the Global Times news that the third vaccine trial by the joint efforts of China’s Sinopharm and the UAE's G42 Healthcare gained a major response in Abu Dhabi. The update suggests that the first group of 15,000 volunteers received the vaccine on Thursday. Any positive response to vaccine testing is welcomed as infections increase around the globe. Elsewhere, China's FX regulator said on Friday that small fluctuations in the current account are normal and there is no need to panic, according to Reuters. The report also stated China's current account has the conditions and fundamentals to stay within a reasonable range in the future. Cross-border capital flows should remain stable in the second half of 2020.


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