The busiest week of the earnings season continues with 3M, McDonald’s Pfizer, JetBlue, and Raytheon Technologies all set to report before the opening bell and Visa, Advanced Micro Devices, Amgen, eBay, Mondelez International and Starbucks report after the final bell. Add to that the fact that investors will also be looking for updates from Congress, which is working to pass another coronavirus stimulus package. Senate Majority Leader Mitch McConnell unveiled the Republican coronavirus relief plan Monday after the bell. The legislation would include relief for jobless Americans, another direct payment to individuals of up to $1,200, and more Paycheck Protection Program small business loan funds, among other provisions. McConnell said the bill would set federal unemployment insurance at 70% of a worker’s previous wages, replacing the $600 per week which states stopped paying out this week. And, The Federal Reserve starts its two-day policy meeting on Tuesday, followed by an interest rate decision on Wednesday. The FOMC decided to maintain the target range for the federal funds rate at 0-0.25% at its last meeting in June as it continued to deal with the impact of the coronavirus (COVID-19) pandemic on the U.S. economy and no change in policy is expected at this time. Last but not least, the Conference Board’s consumer confidence index for July will be released at 10 a.m. Economists polled by Dow Jones are expecting a reading of 96, which would be down from June’s read of 98.1. As we begin trading this morning, the USD has recovered slightly against the major currencies, as gold retreats a bit on profit-taking after making new highs and equity market futures are flat ahead of the earnings reports, after gaining a little over 100 points yesterday. US Treasury yields are higher this morning as the Fed begins their two-day meeting, with the 10-year note trading at 0..6266% and the 30-year bond trading at 1.2791%. There was some optimistic news regarding the virus as Moderna is in Phase 3 of a trial of its Covid-19 vaccine. The company expects to enroll 30,000 U.S. participants in the study, making it the first-large scale test of a coronavirus vaccine. Some currency profit taking should see a modest uptick in the USD, but downside risks remain, as traders expect a “dovish” Fed meeting this time around.
EUR/USD is trading off its overnight highs as the market takes some profit amid oversold conditions. The RSI levels had moved well above the 70 overbought area, but the overnight move has seen RSI levels steady around 53. Technical support levels are expected to hold and it is believed that the move lower due to profit-taking will allow a fresh buying opportunity for traders. Yesterday saw the EUR reach a trading level not seen since September of 2018. At the moment, the EU seems to have gained support after the landmark pandemic agreement, while the US remains pressured over further stimulus packages and viral outbreaks. Economic news out of the EU is improving as yesterday’s German IFO number showed and the EUR will benefit from the speculation that Fed meeting will produce a dovish report. Expect the EUR to hold support levels and move higher during the day.
After a bit of profit-taking occurred during early European trading, the GBP/USD is once again moving higher. The early sell-off found support levels, which held and as with the EUR, the RSI level moved from an overbought 75, back down to 57. Bullish momentum remains as the pound has moved back above the 50-day moving average after briefly falling below. New buyers emerged as the currency came off and the return to overnight highs seem inevitable. The pound remains resilient despite continuing fears of a no-deal Brexit. After the latest round of negotiations ended without any significant progress, UK negotiator David Frost said that there will not be a preliminary agreement achieved by UK Prime Minister Boris Johnson’s deadline of the end of July. He also said the UK should be prepared that no deal will be reached by the end of the year. It seems as if traders have accepted the “Brexit fate”, as the market reacted to these comments by pushing GBP to levels not seen since March 11. There were no major market-moving economic releases due today in the UK, and the pound will trade-off of USD dynamics during the day. Expect the GBP to remain “better bid”.
USD/JPY continues to move lower as safe-haven trading is fueling the currency pair’s move. At the moment USD/JPY is testing a major support level and RSI has been moving lower throughout the overnight currently at 35, just above the oversold 30-level. USD/JPY is trading below the moving averages and a continued move lower seems inevitable. Dovish Fed expectations adding to geopolitical concerns about the virus, as well as US-China relations should see selling pressure on the USD/JPY continue. In economic news out of Japan, the Corporate Service Private Index rose past the -0.5% forecasted to 0.8% in June. It was also reported in the Japanese press that the Japanese LDP group is looking to seek restrictions on Chinese apps that are flooding the markets, which also adds to global concerns. Expect the USD/JPY to test lows during the trading day.
USD/CAD is trading off overnight lows this morning, as oil prices were mixed after rising earlier during Asian trading. Brent crude futures rose $0.02 to $43.43 a barrel, while U.S. Texas Intermediate crude futures fell $0.07 to $41.53 a barrel. Earlier gains were erased as concern over rising coronavirus cases seems to have dampened the outlook for demand. Technically, the USD/CAD is trading between the 50 and 100-day moving averages, and there seems to be some consolidation occurring at these levels. RSI level is at 56, moving higher overnight after touching the 30-level. Some profit-taking is being seen here and analysts seem to think that if oil prices have found a “bottom”, we could see renewed selling in the currency pair. Several analysts are forecasting a major move downward for USD/CAD over the next few months largely based on oil prices returning to the mid $50s level. Canada seems to have gotten a handle on viral outbreaks and this should bode well for the economy moving forward.
The rating agency Fitch has affirmed China’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’, with a Stable Outlook. It said the ratings are “supported by the country’s robust external finances, a track record of strong macroeconomic performance and size as the world’s second-largest economy”. But the ratings are “primarily constrained by large structural vulnerabilities in the financial sector, relatively lower per capita income, and weaker government metrics than those of ‘A’ peers”. The rating agency also said that China’s economy is “now staging a remarkable recovery”. It forecasts real GDP growth of 2.7% in 2020, revised up by a previous estimate of 1.2%. Fitch also noted that there was a sharp escalation of geopolitical tensions between China and several major economies “across a spectrum of issues”. These tensions “will persist”, but they have not had an impact of credit fundamentals in the short term.