The USD is trading lower today after the markets have had the time to digest the speech presented by Fed Chairman Jerome Powell at the Jackson Hole Symposium yesterday. Chairman Powell laid down a new policy framework prioritizing reaching full employment at the expense of letting inflation overheat. Powell and his colleagues at the Fed will also allow consumer prices to exceed the 2% target for one year to compensate for past low inflation. While the news has no immediate policy implications as the Fed has pledged to keep low rates through 2022, it implies lower borrowing costs for much longer. Dow Futures are higher his morning, indicating a positive opening to US equity markets later today of around 120 points. The equity markets continue to perform admirably, with the S&P briefly making an all-time high. With interest rates set to remain low for an extended period, investors will concentrate on economic data. Consumer spending for July is due out at 8:30 at should come in at 1.6%, after the previous release of 5.6%. US Treasury yields are higher this morning, with the 10-year note at 0.7638%, and the 30-year bond at 1.5369%. Expect the USD to end the week on the downside, while equity markets continue their move higher.
EUR/USD is trading off overnight highs but still very well bid. Technically, the 200-day moving average has converged with the 100-day as the 50-day has crossed both on the upside. Resistance points have been tested and broken, only to see the currency fall back below. RSI has been trading around the 70-level and presently is just above that at 71. Having tested the previous high reached in early August, a strong move past that could see the EUR test two-year highs later today or early next week. Investors continue shrugging off the increase in coronavirus cases. Spain remains the leader in this grim contest and France is also high after Parisians were ordered to wear face masks in all public places. On the data front, Consumer Confidence in the euro bloc tracked by the European Commission (EC) came in at -14.7 for the current month, slightly better than the -15.0 previous. The single currency may remain on its bullish trend over the next few trading sessions.
GBP/USD is also off overnight highs but is very well bid after trading overnight near highs not seen in the past 8 months. The pound is trading well above the moving averages, while the RSI is flirting with the 70-level, currently at 69. Some overbought profit-taking could see the upward move hit a pause, but overall the move remains positive. A full break above the December 2019 high should see the pound move higher. This move can be seen as purely “anti-USD” as in England there are few reasons for a positive outlook. Great Britain continues to move closer to a “no-trade-deal” Brexit. According to The Times, EU officials have laid down an ultimatum of two weeks to clinch a breakthrough in trade and security talks. David Frost, the UK's chief negotiator, has reportedly rejected Brussels' approach and said he would not accept “dictates." Andrew Bailey, Governor of the Bank of England, will address the virtual Jackson Hole Symposium. Bailey may respond to his American colleague by expressing openness to a similar policy. Concern remains over the increase in coronavirus cases in the UK, just as the school year begins. Authorities are scrambling to reopen schools safely, and the task has become harder amid an increase in infections.
USD/JPY has fallen to overnight lows after Japan’s longest-serving Prime Minister Shinzo Abe, the father of "Abenomics", announced he is stepping down due to health issues. His resignation had been speculated over the last week, due to his visits to doctors. Uncertainty about economic policy is triggering safe-haven flows to the yen. Technically, the USD/JPY is well below the moving averages, and seller momentum has pushed it lower. After flirting with the 30 RSI level, the currency pair has moved slightly above to 33. In his press conference earlier today, PM Abe staled, “I cannot cling on Prime Minister (PM) post if I am not feeling my best. My health started declining around the middle of last month and I decided to step down due to illness and treatment procedures. I apologize for quitting the post during the coronavirus pandemic and will fulfill my responsibility until a new PM is approved.” No possible successor has been mentioned at the moment. According to Abe, the new prime minister will be tasked with constitutional revision.
USD/CAD is trading lower this morning despite the slight move lower on oil prices overnight, as oil refiners in the Gulf seem to have avoided the worst of Hurricane Laura. Brent crude futures for October, set to expire on Friday, fell $0.09 to $45.00 per barrel, while the more active November contract fell $0.07 to $45.53. U.S. West Texas Intermediate crude futures fell $0.16 to $42.85 a barrel. Technically, the USD/CAD has broken through support from lows reached seven months ago and it appears the loonie is gaining momentum. Bank of Canada Governor Tiff Macklem also spoke at the Jackson Hole symposium yesterday. He stated that many central banks are at their lower bound on rates. He also said they see a disconnection between the central bank perception of inflation and the public’s perception. Canada's GDP figures for June are set to show an ongoing recovery, expanding on the 4.5% increase in May. The expected number for June is forecast at 5.6%. As oil refineries begin to produce, if the demand is there, the price should rise, given the Canadian Dollar room to continue improving.
Mexico's President Andres Manuel Lopez Obrador on Thursday estimated his country began to recover its economy after a weighty fall due to the combination of the Covid-19 pandemic and oil crisis. In his morning press briefing in Monterrey, Nuevo Leon, the president admitted that Mexico's economy dropped just like the rest of the world´s, as it had not seen in a long time. Unfortunately, the Mexican Peso weakened to its lowest levels this week. Technically, the 50-day moving average has crossed the 100 and 200-day moving averages so we could see some further Peso weakness. Mexico’s health ministry on Thursday reported 6,026 new confirmed cases of coronavirus infection, bringing the total in the country to 579,914 cases. It reported the same number of accumulated deaths registered the day before, 62,076. The government has said the real number of infected people is likely significantly higher than the confirmed cases.
As markets watch the US-China relations move back and forth from good to bad, China has been having an ongoing feud with Australia. The latest on that is China’s General Administration of Customs said in a statement late Thursday, they have announced a ban on imports of beef from Australian firm John Dee Warwick. This comes after they detected a banned chloramphenicol substance in some of the company’s beef loin. The Customs said they requested a full investigation and a report to China within 45 days from the Australian side after it detected the banned substance. There has been no apparent reaction yet from the Chinese regarding the comments made overnight by President Trump regarding China in his acceptance speech. Besides promising to end reliance on China, “once and for all”, he added that he would impose tariffs on companies that leave the US.
Brazil’s National Monetary Council (CMN) on Thursday approved the immediate transfer of 325 billion reals ($58.3 billion) to the Treasury from the central bank to help pay down the public debt and ease growing strains on its ability to refinance debt. The funds are part of the central bank’s 478.5 billion real profits accrued in the first half of this year, mostly due to currency effects, and will help bolster the Treasury’s cash buffers that have been hit by the COVID-19 pandemic. Under a 2019 law, the transfer is permitted in times of “severe liquidity restriction” to borrow or pay the debt. Treasury and central bank officials said this transfer reflects the extraordinary market conditions recently. The CMN is Brazil’s highest economic policy body and includes the economy minister and central bank president. Treasury Secretary Bruno Funchal said there has been a “very significant increase” in debt maturing in the next 12 months as a share of total debt, the main red flag of short-term financing risk. That is now up to 23% or maybe more, from 18.7%, he said. With Brazil’s total debt stock exceeding 4 trillion reals that would indicate more than 900 billion reals maturing in the next 12 months. The 325 billion real will help give the Treasury more breathing space, but this does not mean less issuance, and expenditure will not rise, Franco said.