Daily Market Pulse

Traders anticipate FOMC meeting minutes


The USD continues to be under pressure this morning, falling yesterday to its lowest point in more than two years as traders look at the effects of the Federal Reserve’s stimulus programs, and sell USD and buy equities. Meanwhile, stock indices moved to record highs. Overnight EUR, GBP, JPY, and CAD all moved higher against the greenback. As the USD falls, the equity markets rise as the S&P 500 reached its highest level yesterday, coming back from the losses that occurred earlier this year when the coronavirus first hit. The S&P traded above the level reached on February 19 and has ended the shortest bear market in US history. Investors are still waiting for the second virus stimulus bill, but at the moment there seems to be no movement on that front. Later today, the FOMC will publish meeting minutes from the June meeting and traders will see the Fed’s thoughts regarding the economy. US Treasury yields are slightly lower this morning, with the 10-year note trading at 0.6525% and the 30-year bond trading at 1.3718%. The tension between the US and China continues, as President Trump announced yesterday that he canceled any further trade talks with China as a response to the coronavirus pandemic. The dollar may remain under pressure today.


EUR/USD is trying off its overnight highs but remains well bid heading into the North American trading day. The currency pair is trading above the 50, 100, and 200-day moving averages. RSI, which was well above the 70-level overnight, has fallen to 63 as some profit-taking occurred in earlier trade. The EUR/USD remained strong despite mixed Eurozone CPI figures. According to Eurostat, the Eurozone CPI report for July, showed consumer prices at +0.4% yearly, meeting the flash estimate of +0.4% and +0.4% expectations. The core figures rose by 1.2% versus +1.2% previous and +1.2% expectations. Monthly, the bloc’s CPI figure for July decelerated by 0.4% versus -0.3% expectations and +0.3% previous while the core CPI numbers arrived at -0.3% versus +0.3% expected and -0.2% last. Traders seemed to ignore these numbers, for the most part, taking some profit but keeping the single currency better bid through the early European trading session. Any negative USD feelings could continue to fuel the EUR’s rise. 


GBP/USD also trading higher this morning, just off the overnight 7 1/2 month high. The pound is trading well above the moving averages and in a similar scenario to the EUR, the RSI levels have come back below 70, after traders took some profit at the higher levels and are now trading around 57. The move lower after reaching the overnight high has allowed some traders to buy the pound. According to the Office for National Statistics, UK CPI unexpectedly rose to its highest level since March and came in at 1.0% year-on-year, in July. Meanwhile, core inflation, which removes volatile energy, food, alcohol, and tobacco prices climbed to 1.8% during the reported month as compared to 1.4% in June. The data takes the pressure off of the Bank of England to ease further, instead offering the UK central bank more time to continue with the current wait-and-see approach. Brexit talks continue to linger on and analysts expect the negotiations to last well into September, according to reports from the Financial Times. 


USD/JPY continues under pressure as well, after a slight bounce in early European trading merely brought out more sellers. Currently trading below the moving averages, the USD/JPY has once again moved into an oversold situation as RSI, after moving above the 30-level, has fallen to 26. Profit-taking could see some pull-back, but the direction is moving lower. Adding some support to the JPY is the latest Tankan report that was released yesterday which saw business sentiment improve slightly over the last four months. Risks continue as the coronavirus pandemic has seen Japan’s economy recover slowly. Manufacturing “morale”, according to the report was somewhat less negative than in the prior report. While the overall mood remains pessimistic, manufacturers are starting to see a light at the end of the tunnel. Further downside movement in the USD/JPY will depend on the reaction to the FOMC minutes later today. We may see the currency pair to trade lower.


USD/CAD has reached a seven-month low although oil prices have moved slightly lower overnight. Brent crude futures were $0.33 lower this morning falling to $45.13 per barrel, while U.S. West Texas Intermediate crude fell $0.21 to $42.68 per barrel. One would have expected the loonie to weaken after this price action, but that hasn’t been the case. The move lower has accelerated with USD/CAD falling into an oversold situation as the RSI level is currently at 26. Besides the FOMC minutes that will be released later today, traders will focus on Canadian CPI numbers released this morning. The year-on-year inflation rate for July is expected to come in at 0.5%, lower than the June number of 0.7%. Month-on-month the number is expected at 0.4%, also lower than the June number of 0.8%. While these numbers are not expected to help the Canadian Dollar, if the FOMC minutes are perceived as being dovish as many expect, the selling pressure on the USD could continue. 


Mexico’s health ministry reported on Tuesday 5,506 new confirmed cases of coronavirus infections and 751 additional fatalities, bringing the total in the country to 531,239 cases and 57,774 deaths. The government has said the real number of infected people is likely significantly higher than the confirmed cases. New coronavirus case numbers have risen in recent weeks in Baja California Sur (BCS) and Zacatecas, a senior health official reported. Health Ministry Director of Epidemiology José Luis Alomía presented a graph at last night’s coronavirus press briefing that showed that new case numbers trended upwards in BCS for several weeks until the first week of August when they declined 8%. However, as health authorities are still registering data for that week, case numbers may have plateaued or even continued to trend upwards between August 2-8. He noted that 15% of total estimated cases in BCS, 1,008 of 6,526, are considered active whereas nationally fewer than 7% of total cases are active. BCS has recorded 266 confirmed Covid-19 fatalities, the lowest death toll among Mexico’s 32 states, and occupancy for both general care and critical care hospital beds is currently below 40%. In Zacatecas, new coronavirus case numbers have increased steadily since late May and spiked 14% in the first week of August compared to the last week of July. Just over 18% of total estimated cases, 791 of 4,289, in the northern state are considered active.


According to White House Chief of Staff, Mark Meadows, there are no US-China trade talks scheduled for now. US Trade Rep, Lighthizer continues to have discussions with his Chinese counterparts regarding their commitments on the Phase One trade deal. News that President Trump has canceled talks with China has markets concerned that tensions will once again rise between the two superpowers. Mixed comments are coming from the White House. When asked if the US would pull out of a trade deal with China, the President responded, “we’ll see”, while top US economic advisor, Larry Kudlow denied that the trade deal would be voided. Either way, tensions between the two countries remain high. One positive note, according to Reuters, the US Transportation Department announced late yesterday that it will allow Chinese passenger airline to double their flights to the US to eight weekly round trips. This comes in response to China agreeing to allow the US to double its flights. 


Brazil's real rallied on Tuesday after Economy Minister Paulo Guedes put to rest speculation about his imminent departure. Against a sinking dollar, Brazil's real firmed 0.7%, recovering from its lowest level since May. The Bovespa stock index was headed toward its best day in three weeks, aided also by upbeat earnings from retailer Magazine Luiza. Guedes, who is the Brazil government's remaining 'super minister,' said late on Monday that he had the full confidence of President Jair Bolsonaro. Speculation was rife that political pressure for more public spending could force him to quit, sending Brazil markets well into the red on Monday. The country has seen a slew of ministerial resignations in the past few months over differences with the administration, increasing political uncertainty and doubts about the future of reforms in the country. Many FX strategists warn that while the spending cap may not be breached, the pressure to increase public spending will remain high as long as the COVID-19 outbreak remains uncontrolled. Brazil had registered 3.4 million cases of the disease and more than 108,000 related deaths as of Monday.


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