USD

Profit-taking, technical resistance, and good economic numbers helped the USD climb back from yearly lows yesterday. Traders are now focusing on the ADP private-sector jobs report, as a prelude to the NFP release on Friday. ISM Manufacturing PMI was the big news yesterday coming in at 56, the highest reading since 2018. The ADP day report is expected to show private-sector jobs increased by 950,000 after last month’s increase of 167.000. US Treasury Secretary Steven Mnuchin said that the administration would like to inject fresh fiscal stimulus and stressed the need to address the lapsed federal unemployment claims. Talks between Republicans and Democrats remain deadlocked. After opening the new month on positive ground, Dow Futures are higher this morning as well indicating a positive opening to the US equity markets later today. This is one of those rare times where the USD and the equity markets are both moving positively. Traders are also awaiting the release of the Fed’s Beige Book today which shows how the Fed is looking at the economy. US Treasury yields are higher this morning as the 10-year note is trading at 0.6803%, while the 30-year bond is trading at 1.4388%. ADP release will be the main focus today as the performance of the labor market is one of the main factors influencing the Fed’s monetary policy decisions. 

EUR

EUR/USD is trading towards the bottom of its overnight range after falling from levels not seen since 2018. ECB Chief Economist Philip Lane stated that the ECB is watching currency valuations. While Lane's comments are far from hinting at any policy measure or intervention, they served as one spark to bring down EUR/USD from its peak. The ECB may be worried by August's downbeat inflation figures. The Consumer Price Index fell to negative territory yearly, while Core CPI tumbled to 0.4%. Adding to that the currency could not break through strong resistance levels. Add trader profit-taking to the mix and you have the perfect storm for a lower EUR. Technically, the moving averages are pointing down and RSI which had been as high as 70 yesterday morning is currently at 28, expressing an oversold position. Adding to the pressure on the EUR, COVID-19 cases continue rising in Europe while they are off the highs in the US. The EUR may remain under pressure today.

GBP

GBP/USD is also lower this morning after trading to a new yearly high yesterday. Overbought conditions as well as failure to breach resistance levels started the move lower and then the US economic numbers fueled the move. The 50 and 100-day moving averages are converging and RSI is trading at 39. PM Boris Johnson reportedly is still struggling with the fallout from his near-death coronavirus experience and is facing criticism about his handling of the crisis. Johnson was originally criticized for the lack of medical equipment for doctors, announcing a lockdown too late, and most recently for various U-turns on issues related to the reopening of schools. The one decision that his government was universally praised for is the furlough scheme, which paid workers most of their salaries while they were unable to work. However, this program is set to expire in October. Chancellor of the Exchequer Rishi Sunak, who has already considering tax hikes has stated that the program is unsustainable. There is a possibility that PM Johnson could surprise all by announcing an extension That would be a positive for the pound. Bank of England Governor Andrew Bailey is set to speak with MPs and provide updates on the economy. The bank intends to leave policy unchanged for the time being, after slashing rates to near zero and injecting more funds. Any hint of negative rates could weigh on sterling while increasing the bond-buying tool would boost the pound.

JPY

USD/JPY is trading higher this morning, following the other currencies as technically, the 50-day moving average has breached the 100 and 200-day levels. RSI is trading close to the 70-level at 69. BoJ Deputy Governor Masazumi Wakatabe spoke today and stated that “it’s necessary to be vigilant against the risk of a decline in the inflation rate.” He added that “temporary external shocks like the coronavirus pandemic could lead to persistent stagnation.” And, “in order to address both upside and downside risks to prices, the BOJ must continue to strongly commit itself to achieving its price target.” Additionally, he said the BoJ must “constantly have deep discussions” on improving its policy. “It’s necessary to give further consideration to what kind of monetary policy should be taken in the COVID-19 era while referring to discussions being held at other central banks.” As Japan looks towards a successor to PM Shinzo Abe, Chief Cabinet Secretary Yoshihide Suga, announced his intention to contend for the leadership role and said he would continue Abenomics, as it has been working even when Japan has been in a severe economic state. 

CAD

USD/CAD has bounced off overnight lows despite higher oil prices and positive economic releases. The move higher in USD/CAD has been aided by profit-taking and the overall strength of the USD in the last 24 hours. The bounce is being looked at by traders as an opportunity to renew short USD long CAD positions. The economic activity in Canada's manufacturing sector expanded at a stronger pace in August than it did in July with the IHS Markit's Manufacturing PMI rising to 55.1 from 50.4. This reading beat the market expectation of 50.4. The comments on the data release mentioned a strong upturn in the Canadian manufacturing industry, which continued its recovery from the severe Q2 downturn. Oil prices are higher this morning as Brent crude futures rose $0.37 to $45.95 per barrel, extending gains for the third day. U.S. West Texas Intermediate futures rose $0.34 to $43.10 per barrel. Solid U.S. and Chinese factory activity fueled optimism of a recovery from the pandemic, boosting investor risk appetite. A larger than expected draw on U.S. inventories and hope for economic recovery are helping move oil prices higher. 

MXN

Mexican President Andres Manuel Lopez Obrador defended his handling of the economic fallout from the coronavirus pandemic on Tuesday, arguing in a major speech that the economy has fared better than some of its peers. The pandemic lockdown threw Mexico’s economy, Latin America’s second-largest, into the deepest slump since the Great Depression, shrinking 17% in the second quarter. “The economy’s contraction, despite the global disaster, was 10.4% during the first half of the year. But despite the collapse, the damage was smaller than in Italy, Spain, France, and the United Kingdom,” Lopez Obrador said in his state of the union address. Lopez Obrador has resisted pressure to borrow to support the economy or bail out companies on the brink of collapse while picking fights with some businesses. “We have faced the pandemic and we are going to get out of the economic crisis without taking on additional external debt and without allocating public money to immoral bailouts,” he said. Mexico’s central bank has warned the economy could contract by almost 13% this year.

CNY

U.S-China tensions are somewhat on the back-burner, but investors are keeping a keen eye on negotiations to sell popular Chinese media app TikTok to an American suitor. President Donald Trump reiterated that the deadline is September 15 and that the US government should be compensated. Analysts are beginning to look at the Yuan as possibly rising in prominence as a global reserve in international trade. While no one expects the Chinese currency to unseat the US dollar as the world reserve currency, the Yuan is gaining some momentum, as it passes the EUR on terms of the closest competitor to the USD. Its global usage has gradually gone up owing to the country’s growing economic influence, analysts have pointed out. While the percentage of global reserves still shows the US holding over 60%, the Yuan has steadily moved higher and the currency is now the sixth most used currency in international payments and is used to settle about 20% of China’s trade. The Association of Southeast Asian Nations, which is made up of 10 countries in Southeast Asia, is also now China’s largest trading partner, which creates an opportunity to increase the yuan’s use in cross-border trade settlement. The share of the RMB in global reserves has also crept up — from 1% in 2016 to around 2% currently, according to data from the International Monetary Fund.

BRL

Greenpeace has released dramatic new photos of illegal fires burning in the Brazilian Amazon. The aerial images which were captured by photographer Christian Braga over the states of Rondonia, Amazonas, and Mato Grosso from August 16-18, 2020, show fires burning through recently deforested areas, agricultural areas, degraded forests, and on the edges of dense tropical forests. Some of the fires are burning on the borders of state forests, indigenous territories, and protected areas, according to GPS data. “The fires in the Amazon are not natural,” said Rômulo Batista, Amazon campaigner at Greenpeace Brazil. In a statement, he said, “They are criminally set by farmers and land-grabbers to tear the forest down to expand the agribusiness.” Under pressure from the international community, coalitions of investors, and major corporations over rising deforestation in the Amazon, Brazilian President Jair Bolsonaro issued a 120-day ban on fires July 15th, 2020. But satellite data shows the decree is being widely ignored.