Daily Market Pulse

USD higher in quiet overnight trading

6 minute read


The USD is showing some strength in overnight trading against the major currencies. DOW Futures are lower this morning after yesterday’s strong performance. Investors kept a close eye on comments from White House health advisor Dr. Anthony Fauci, who on Tuesday said the U.S. is seeing a “disturbing” surge in new Covid-19 cases. Fauci also struck a more upbeat tone on a potential vaccine and said he expects one by early 2021. Tuesday’s gains followed a turbulent overnight session as traders dealt with confusion over the U.S./China trade agreement. Tensions have continued to remain high between the U.S. and China in recent months over the origins of the coronavirus pandemic and Beijing’s influence over Hong Kong. As we move closer to the end of the second quarter, analysts are looking at the possibility of pension funds taking profits in their stock market gains and switching into buying bonds. Market estimates range from $35 to $75 billion and this will be closely watched over the next few days. U.S. Treasury yields are higher this morning with the 10-year note trading at 0.7250% and the 30-year bond trading at 1.5140%. Fed President Evans from Chicago and Bullard from St. Louis are due to speak about the economy today.


EUR/USD is trading in the middle of its overnight range this morning as traders react to the German Ifo report. According to the report, German business morale posted its strongest rise in June since the report began in 1990, after German reunification. Germany’s economy is set to return to growth in the third quarter according to the Ifo Institute. The June survey of companies showed the business climate index rising to 86.2 from 79.7 in May. Analysts polled by Reuters had expected a rise of 85.0. Company assessments show that German businesses see a “light at the end of the tunnel.” According to Ifo economists, “Germany has passed the economic trough and expectations have risen significantly.” As countries attempt to restart travel, European Union officials will determine who can visit the EU beginning on July 1st  and the US is not on the list. Obviously, prohibiting American travelers from entering the European Union will have significant ramifications as millions of American tourists visit Europe each summer, and business travel is common, given the strong economic ties between the US and the EU. There has been no reaction from US officials as of yet.


GBP/USD has also been trading in the middle of is overnight range as PM Boris Johnson has eased some restraints as the British economy looks to re-open. Pubs, restaurants, museums, and hair salons will be allowed to re-open on July 4th. He has also cut the required social distance between people to three feet, which has prompted strong warnings from scientists that this could increase the risk of transmission. Technically, the GBP/USD remains rangebound, but still showing bullish tendencies as we reach the middle of the trading week. RSI levels are around 55, the middle of the trading range. Stronger than expected PMI reports have revived hopes of a V-shaped economic recovery. With no news on Brexit, the direction of the GBP should be influenced by the direction of the USD.


USD/JPY is traded lower overnight and traders are still looking to test support at multi-week lows. Last evening, the Bank of Japan (BOJ) released its June monetary policy meeting’s Summary of Opinions, noting that the Japanese economy is showing some signs of bottoming out. The Summary of Options is similar to the FOMC minutes here in the U.S. and some key takeaways are: “Prolonged negative impact from pandemic on global growth, japan economy, looks unavoidable,“ “BOJ’s current monetary easing framework is a flexible one that can respond to various changes in economic developments,” “Policymakers must prioritize minimizing the risk of deflation, and then maximize the effects of 'Abenomics' to sustainably achieve annual inflation of around 2%.” There is concern among Japanese officials that further easing of lockdown restrictions has added to the spread of infections.


The tight correlation between equity markets and the Canadian dollar continued yesterday, as markets posted positive gains and the loonie strengthened against the dollar. As US stock futures are pointing lower this morning, the Canadian Dollar is under some pressure with the USD/CAD breaking above technical moving averages. Oil prices are also lower this morning, adding to the loonie’s woes. Brent crude futures are down $0.29 at $42.34 per barrel, while US West Texas Intermediate crude futures are down $0.35 at $40.02 per barrel. U.S. crude stockpiles rose more than expected, and traders are concerned about oversupply. It was also noted that some traders took some profit in positions as rising virus cases could slow down activity. Bloomberg reported yesterday that the U.S. is set to announce tariffs on aluminum imports from Canada, by the end of the week. The U.S. is the primary export destination for the Canadian aluminum industry accounting for over 80% of its trade. There has been no reaction from Canadian officials yet on this report. 


Reuters reported that China’s crude oil imports will likely slowdown in the third quarter of this year when compared to the record purchases seen during the second quarter. According to the report, “China imported a record 11.3 million barrels per day of crude in May, with volumes set to rise in June and July, as cheap crude purchased during an oil price slump in April arrives in the country.” But China is expected to receive around 0.8-1.3 million fewer barrels per day from abroad in August and September than it did in May, China's crude inventory is expected to hit a historical high of 1.1 billion barrels at the end of June, according to reports and with the slowdown in imports, there will likely be downward pressure on global oil prices later this year.


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