The USD is lower this morning against the EUR, GBP, and CAD and higher against the JPY. Equity markets rallied overnight as traders seem to be focusing on the reopening of the economy, rather than the continuing protests occurring in many American cities. According to the DOW Futures, US equity markets should open up around 200 points higher after closing around 90 points higher yesterday. DOW futures started off trading lower as President Trump said he would deploy military personnel across cities facing protests if state governors and local officials prove unable to contain civil unrest erupting across the nation. However, the stock market has mostly trended higher as optimists focus on efforts by businesses to emerge from lockdown protocols implemented to curtail the spread of COVID-19. Additionally, US-China relations continue to weigh on the USD. According to Reuters, China has answered the US move of revoking Hong Kong’s favored trade status by asking state-owned firms to stop purchasing soybeans and pork from the US. Overall, the USD has fallen around 5% since it reached its peak back in March when concerns over the Coronavirus pandemic were at their highest, and traders looked to the USD as a safe-haven purchase. Now it seems traders are feeling more comfortable taking on risk and moving back into currencies. US Treasury yields were higher overnight as investors here also seemed focused on the reopening of the economy and placed civil unrest on the back-burner. 10-year notes were trading at 0.6803% while 30-year bonds moved higher to 1.4833%.
EUR/USD moved higher overnight trading at its higher level since March, as traders took a positive stance at European countries continuing to re-open as Coronavirus statistics continue to fall. Technically, the EUR is trading at the top of a recent move upward and the hourly chart RSI has broken through the 70-level indicating that the currency is in “overbought” territory. The single currency is trading above the 50, 100, and 200-day moving averages. Strong resistance levels lie ahead and with the currency in an overbought condition, failing to break this resistance could see a reversal and move lower. Spain reported zero deaths from the disease on Sunday and weekend figures in Germany, France and Italy also continue to be positive. As countries continue to ease restrictions, employment levels are bouncing from the lows seen last month. Speculation is rising that the ECB will expand its QE policy despite the German constitutional ruling that the program is partly illegal. This move will keep borrowing costs low and support the recovery. At the meeting, it is expected that EU President Lagarde will present poor economic forecasts which have already been priced into the currency’s move.
GBP/USD has risen overnight, making new one month highs. As traders are reacting to this, the UK is apparently ready to compromise with the EU on Brexit talks and the EU is willing to make some concessions as well. Technically, the pound has moved well above resistance levels and is currently trading above the 50, 100, and 200-day moving averages. RSI has gone well above the 70-level, currently sitting just below 90, so any possible negative news coming from the UK today could see a quick turn lower as the pound is very much overbought. According to The Times, the UK is ready to compromise on the issue of fisheries, which has been a small, yet politically significant industry in these negotiations. The Times article says the UK will compromise if Brussels does as well. PM Johnson has refused to extend the transition period beyond year-end and without an agreement. The UK will default to World Trade Organization rules in 2021. Helping the pound gain was the release of Coronavirus statistics which showed the level of deaths in Great Britain dropping to its lowest number in months, aiding to the reopening of the economy. Pressure on the USD due to US-China relations and civil demonstrations have also aided the GBP.
USD/JPY is trading higher this morning as traders exit safe-haven trades and take on more risk. Technically, the 20-day moving average has crossed the 50, 100, and 200-day moving averages signaling traders to buy USD/JPY. RSI levels are close to the 70-level, but not yet there. As USD/JPY broke above resistance levels, the move higher was confirmed and now it looks like the currency will test monthly highs in the next few trading sessions. Pressure is also on the JPY as Moody’s Investors Service issued a report stating that the pandemic poses the largest shock to the Japanese economy since the Global Financial Crisis. Japan’s real GDP forecast is expected to contract by 6.5% in 2020. Japanese Finance Minister Taro Aso said that the government has no immediate plan to issue corona-bonds or bonds issued to cover costs to combat the Coronavirus pandemic. Expect the USD/JPY to move higher over the next few days.
USD/CAD is trading much lower this morning breaking through strong support levels as continued optimism over the global economy puts pressure on the USD. Technically, the USD/CAD is oversold as the currency pair is not only trading well below the moving average levels, but at the moment has an RSI of 13, well below the oversold 30-level. A modest rise in oil prices helped to support the loonie and added to the USD pressure. Oil prices are higher ahead of the OPEC+ meeting later this week. Brent crude rose $0.88 to $39.20 per barrel while West Texas Intermediate crude rose $0.72 to $36.16 per barrel. While oil prices have moved higher in the past six weeks, thanks to supply cuts by OPEC and its allies, oil prices are still down 40% for the year. The OPEC+ meeting is expected to see the current production cuts extended to September 1st. There is no significant economic data due out from Canada today.
The Chinese Foreign Ministry has not commented on the report that there has been a halt on soybean purchases from the US. The Ministry has also once again stated that the Hong Kong situation is an internal affair. Despite claims that Chinese government officials have told state-run agricultural firms to stop their purchases of American farm goods, Zhang Xiaoping, the Country Director for China at the US Soybean Export Council told the Global Times, “Chinese firms continue to purchase the US soybeans in line with market rules, unaffected by external factors. This is proven by Chinese firms' buying of newly-harvested US soybeans on Monday.” This is a situation that will be watched closely in the coming days.