There are two big items on trader’s agendas this morning as investors await a congressional hearing on antitrust in “Big Tech” as well as the Federal Reserve’s latest policy decision. Chief executives of Amazon, Apple, Facebook, and Google-parent Alphabet will testify before the House Antitrust Subcommittee at noon today, following a year-long probe into their anti-competitive practices. Investors will look for insights on how “Big Tech” is handling antitrust challenges from regulators with the authority to break them up. Later this afternoon, the Federal Reserve will conclude its two-day policy meeting and will release a statement at 2 p.m. ET. Fed Chairman Jerome Powell will have his press conference at 2:30 p.m. ET. The central bank is expected to keep interest rates unchanged at near zero to support an economy still struggling with the coronavirus pandemic. Yesterday, the Fed announced it would extend its emergency lending programs through the remainder of 2020. According to analysts at Schroders, “markets continue to expect ultra-accommodative policy from the Fed, and the Fed is unlikely to disappoint at this meeting. Considering that the US is still squarely in the center of the pandemic, the only question for investors seems to be just how dovish will the Fed be. These statements later today will undoubtedly affect the USD which had a bit of a revival yesterday, but most analysts consider this a consolidating move before the greenback heads lower. The virus is hurting US economic recovery and Europe seems to have better contained the epidemic. As global economies improve, the USD tends to weaken. Today, investors will see results from Boeing, General Motors and General Electric before the bell, and Qualcomm and PayPal reporting after the close. As we begin the North American trading day the USD is lower against the major currencies, while DOW Futures are pointing towards a positive opening of around 50 points later this morning. That could change after the earnings reports are released. US Treasury yields are slightly higher with the 10-year note trading at 0.5855% and the 30-year bond trading at 1.2293%. With no surprises expected later by the Fed, the USD should remain under pressure during trading today.
EUR/USD is trading close to its overnight highs this morning. Technically, the single currency remains in a bullish mode, and any slight dips in the upward progress are seen as profit-taking corrections. EUR/USD has pushed through resistance levels once overnight and should re-test these levels again later today. EUR/USD is currently trading above the moving averages and RSI is at 60. With expectations from traders regarding the Fed’s next move as “dovish” and the struggle to get a new stimulus package passed through Congress, the EUR should benefit. Overall, the European picture remains positive as the Euro continues to benefit from the historic agreement on the EU fund. Flare-ups of the coronavirus in parts of Spain, France, and Germany are now seen as localized events, as keeping the virus under control seems to be the key to Eurozone recovery and Euro strength. Adding to the positive feel for EUR, the German economic institute DIW, published a report earlier today saying that Germany’s economy should expand by 3% this quarter, as it recovers from the pandemic.
GBP/USD is moving towards levels not seen since March as traders seem to be ignoring negative Brexit news and focusing on negative USD news. While presently technically overbought as the RSI is at 72, traders seem comfortable buying pounds. Profit-taking, just like the EUR/USD, will provide fresh opportunities for traders to buy GBP. According to reports, British pharmaceutical firms are making progress in developing a coronavirus vaccine. Both AstraZeneca and Synairgen have reported progress in their work and have moved into Phase 3 testing of their respective vaccines. Shoppers in the UK are returning, taking advantage of the re-opening of Great Britain, as retail sales in the UK reach 13.9% in June and are close to the levels seen in 2019. The negatives remain, however, with the Brexit talks not getting anywhere and reports that the British contingent may abandon negotiations altogether. UK-China relations are growing further apart as PM Johnson has canceled the extradition treaty with China, in response to the Chinese moves on Hong Kong. This may cause the Chinese to lessen investment in the UK which could create a problem moving forward. Nevertheless, the pound looks to continue its upward move today.
USD/JPY is trading near overnight lows, as traders continue to purchase JPY as a safe-haven alternative. Technically, the 50 and 100-day moving averages are converging towards the downside and RSI levels are at 38. The continued move lower by USD/JPY is happening even though Fitch affirmed Japan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at “A”, but downgraded the outlook to negative from stable. The rating agency said: “The coronavirus pandemic has caused a sharp economic contraction in Japan, despite the country’s early success in containing the virus. The Negative Outlook reflects that the higher debt ratio and downside risks to the macroeconomic outlook will nevertheless exacerbate the challenge of placing the debt ratio on a downward path over the medium term.” Fitch also projects the economy to contract by -5% in 2020, before rebounding to 3.2% growth in 2021. The rating agency also expects BoJ to maintain its current interest-rate setting through “at least the end of 2022”, and it expects BoJ to refrain from cutting interest rates further because of the impact on “bank profitability”. Normally, this would have seen the USD/JPY push a bit higher but negative USD feelings remain strong and USD/JPY could push lower during the day.
USD/CAD is trading lower this morning as well as oil prices rose overnight after an industry report showed inventories in the US were lower than expected. This gave the market a bit of a boost and Brent crude futures prices rose $0.14 to $43.36 per barrel, while U.S. West Texas Intermediate crude futures prices increased by $0.02 to $41.06 per barrel, after having fallen in the previous session. Technically, the USD/CAD should move lower as the 100-day moving average is converging on the 50-day moving average, a bearish sign. RSI is at 40 which means the currency pair is not yet in overbought territory. According to analysts from TD Securities, "Canada looks to have firmly transitioned to its recovery phase and we look for industry-level GDP to rise 3.9% in May," The GDP report is due out on Friday. Concerning interest rates, the analysts do not expect any move higher in rates until the second half of 2022. Look for the USD/CAD to remain under pressure today.
Australian Foreign Minister Payne stated overnight that Australia has no intention of hurting their relationship with China. He did state that Australia would hold countries such as China to the rules of law and hold countries accountable for breaches such as the “erosion of freedoms’ in Hong Kong. But he also said, "The relationship that we have with China is important. And we have no intention of injuring it". China’s President Xi Jinping spoke at the annual meeting of the Asian Infrastructure Investment Bank, which is Beijing’s answer to the World Bank. President Xi said that China always supports multilateralism, which is an alliance of at least three governments participating to solve a particular problem or issue. This is the opposite of unilateralism, which is when one country acts without regard to the interests of other countries. With China coming under pressure lately from other governments, this may be looked as a possible olive branch from the world’s second-largest economy.