Daily Market Pulse

FOMC minutes release aids the US dollar


The USD traded higher during early Thursday morning after getting a boost on Wednesday from the release of the FOMC minutes of last month’s Fed meeting. Speculation had been strong for the Fed to adopt an average inflation target and look to push inflation above 2%. However, the minutes were vague and the greenback recovered. As we approach the opening of the North American trading day, the USD remains pretty well bid against the majors. DOW Futures were lower in overnight trading but have pared some of those losses after the U.S and China announced the resumption of trade negotiations. The U.S. and China have agreed to go back to the negotiating table in the coming days to review the progress of their phase one trade deal, according to the Chinese commerce ministry. Initial claims data has been released today and another 1.106 million first-time applicants filed for unemployment benefits during the week ended August 15. Last week, the government reported was 963,000, the first time that claims for unemployment insurance had fallen below 1 million since March 21. US Treasury yields are lower this morning, with the 10-year note trading at 0.6574% and the 30-year bond trading at 1.3891%.


EUR/USD is trading lower this morning, after taking a major fall in trading yesterday. Technically, the reversal has put the single currency in an oversold position as the RSI is currently at 28. The 50-day moving average on the hourly charts is just about to break below the 100-day moving average which should bring out further selling. The rejection of the upward move and ongoing correction will weigh on the EUR today. As the USD receives a boost from the FOMC minutes, traders will await the release of ECB minutes due out later today. There is hope for some positive reinforcement on the EUR. Adding to the EUR’s woes, the spike in new coronavirus cases in Spain, Germany, France, and Italy has unnerved the EUR bulls. While cases in the US seem to be slowing at the moment falling from a peak of 67,000 on July 22 to 47,500 yesterday, the largest European countries impacted by COVID have seen the 7-day average daily increase from 2,400 on July 14 to 12,500 on Tuesday. The impact of this is not yet evident in the official economic data but the high-frequency figures show a clear flattening of activity and this will undoubtedly come through in the official data. There are growing fears that a second wave of the virus across Europe could likely put pressure on the EUR. Market participants have become increasingly sensitive to spreads in cases all over the world.


GBP/USD has recovered a bit from overnight lows and is currently trading just below the highs seen in early European trade. Technically, the pound is approaching the 200-day moving average and RSI has rebounded from a low of 27 in Asia to its current level of 39. Investors await the latest updates on Brexit negotiations. Disagreements remain over UK truckers’ access to Europe. According to the UK Telegraph, chief UK negotiator David Frost will tell Brussels that refusal to allow wide-ranging access for British trucks is likely to harm the EU more than the UK. A Reuters poll released yesterday states that the British economy will not fully recover from its current historic downturn for at least two years. The poll also said that there is only a very slim chance that the Bank of England will use negative interest rates to boost an upswing in the economy. According to the British Chamber of Commerce, UK companies are struggling with cash flow problems as the recovery has been slow. While most business sectors have re-opened for business, more than a third of those businesses said they had less than three month’s worth of cash reserves. This becomes a major concern if Great Britain is forced into another lock-down.


USD/JPY is trading above the 50 and 100-day moving averages and just below the 200-day moving average. After moving into an overbought situation during early Asian trading hours, RSI for the currency pair has now moved below 70 and is trading at 61. The initial move higher in USD was thwarted at the 200-day resistance level, and traders expect some consolidation in the currency pair before another test higher. In an attempt to get the economy moving, Japan Airlines (JAL) announced today that it will restart flights to Sydney, Australia. The airline had suspended operations to the city earlier this year amid the implications of the global health crises. However, it will be returning to the capital of New South Wales in September. 


USD/CAD is trading higher this morning as well, trading a bit below overnight highs. As with the other currencies, USD/CAD saw being overnight push the RSI to levels above 70 but has now moved back below that level to 57. Technically, the 50-day moving average is getting close to crossing the 100-day moving average, which would prompt further USD/CAD buying. Oil prices aren’t helping the loonie, as Brent crude was down $0.36 to $45.01, while US West Texas Intermediate crude was down $0.38 to $42.55 per barrel. Concerns over demand if the coronavirus crisis is prolonged have traders concerned. According to the Energy Information Administration, (EIA), fuel demand was down 14% from the same period a year ago, covering the last four weeks. There is hope that global demand will recover to pre-pandemic levels in the fourth quarter of 2020, but any further outbreaks of the virus could stall demand.


The number of new daily virus cases and deaths has been diminishing according to the country's Deputy Health Minister. The country has the world's third-highest coronavirus death toll. The coronavirus pandemic is now in “sustained decline” in Mexico after a significant drop in fatalities during the past week, the government’s coronavirus czar Hugo Lopez-Gatell said yesterday. In the week through August 17, Mexico’s health ministry recorded 4,020 additional fatalities from the virus, a decline of almost 20% from the previous seven-day period. Deputy Lopez-Gatell and President Andrés Manuel López Obrador have made a series of declarations about how the government is winning the fight against the virus, even as the pandemic continues to hit new records in Mexico. 


While trade negotiations with the US are set to resume, China and Australia continue to have trade problems. According to a report from the Australian Financial Review posted on Thursday, the Australian government is considering blocking China’s Mengniu Dairy Co. Ltd’s purchase of some of the country’s best-known dairy products, citing sources who blamed “diplomatic issues”. Treasurer Josh Frydenberg has gone against the advice of the Foreign Investment Review Board (FIRB) which was in favor of approving the A$600 million ($430.98 million) deal. That would mark the first government veto since Australia, in July announced its biggest shake-up of foreign investment law in almost half a century. This could further hurt the Australian-China trade relations, especially after China launched an anti-dumping probe on Australian wine imports. In Beijing, the city is taking another step back towards normality, as they are allowing residents to go “mask-free” outdoors. The announcement follows almost two weeks without a new case of coronavirus in the capital. China has largely brought the pandemic under control, fighting sporadic outbreaks with mass testing and contact tracing.


Brazil's real fell to its lowest level in nearly three months on Wednesday, pressured by a firming dollar on the release of minutes from the U.S. Federal Reserve's recent meeting, while continuing tensions between the U.S. and China also weighed on the currency. Brazil's real fell as much as 1.3% against the dollar, while stocks in Sao Paulo dropped after their best day in 10-weeks on Tuesday after Economy Minister Paulo Guedes silenced speculation about his departure. The country has seen a slew of ministerial resignations in the past few months over differences with the administration, increasing political uncertainty, and with its doubts about the future of reforms in the country. "There is a broader debate within political circles about the fiscal stance in 2021 and beyond, with growing calls for the government to break the spending cap which is enshrined in the constitution and limits growth in primary spending to the rate of inflation," said analysts at Capital Economics. The dollar emerged from 27-month lows after the Fed suggested it could pursue aggressive stimulus measures for longer than under its previous strategy.


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