Daily Market Pulse

USD begins the week slightly lower

6 minute read


The USD is slightly lower this morning, as we begin the last few days of the second quarter. The main focus this week on the economic side will be the release of Non-Farm Payroll and unemployment figures on Thursday. Before that, however, it seems as if the surge in coronavirus cases has taken center stage. After initially trading lower, DOW Futures has returned to a positive level in early European trade indicating an opening of around 100 points, after Friday’s decline. Cases of the virus across the US have risen over 40% from the prior week and Florida and Texas have rolled back some of their re-opening measures. Health care officials are concerned that the window is closing for the U.S. to halt the virus outbreak. This could lead to more states easing back on re-openings which could hurt the economy. If this continues, look for the USD to return to safe haven status if it appears the economy will be negatively affected. This will cause the equity markets to move lower as well. US Treasury yields are higher this morning with the 10-year note trading at 0.6512% and the 30-year bond trading at 1.3845%. 


EUR/USD is trading near the top of its overnight range as Europe seems to be handling the coronavirus better than their US counterparts. Cases are easing in France, Germany, and Italy as the continent prepares to re-open. According to a report from New York Times over the weekend, Europe will allow outsiders to begin entering the continent on July 1st, but the article notes that the US and Russia are among the nations considered too risky at present because they have not controlled the coronavirus outbreak. The exclusion of the United States, an important source of tourism to the European Union, represented a stinging rebuke to the Trump administration’s management of the coronavirus scourge. This will add to tensions between the US and EU and should be EUR positive this week.


After rising earlier in the overnight trading session, the GBP/USD has fallen back to overnight lows. The fifth round of talks between the UK and EU are set to begin today, and they have been labeled intense. Most observers do not expect any breakthrough in the log-jam that has occurred during previous meetings. Reuters reported over the weekend that the UK will leave the EU on 'Australian terms' if no agreement can be reached. Prime Minister Boris Johnson reportedly told this to his Polish counterpart Mateusz Morawiecki on Saturday. What the PM meant by 'Australian terms' is that Australia and the EU do not have a comprehensive trade agreement. Australia follows rules laid out by the World Trade Organization, which is how the UK will trade with the EU if not agreement is reached. Despite falling virus cases, the re-opening of Great Britain has been slow and the numbers have elevated somewhat in the last few days. With no expected agreement in sight look for pressure to remain on the pound.


USD/JPY is trading in the middle of its overnight range. Japan’s May Retail Sales fell 12.3% year-on-year according to government sources. The market had been expecting an 11.6% decline. Consumer spending is a key indicator for the Japanese economy. These low readings do not bode well for the economy already under pressure and will be negative for the JPY. Adding to the JPY’s woes, Large Retailers’ Sales also fell to -16.7% from the prior report’s -11.7%. With all the geopolitical concerns around the globe including trade confrontations between the US and EU and the US and China, safe haven JPY buying would seem to be inevitable. This could happen later in the week, but for the time being, USD/JPY looks to trade higher. 


USD/CAD is trading higher this morning and traders will keep an eye on several economic releases that are due this week, which include GDP and trade balance. GDP is due out Tuesday, and Canada releases GDP every month, unlike other major economies, which publish GDP each quarter. In March, the economy showed the effects of Covid-19, with a sharp decline of 7.2 percent. Still, this was better than the forecast of 9.0 percent. Analysts are braced for an even sharper decline in April, with a forecast of -10.5 percent. Trade balance is due out Thursday and Canada continues to record trade deficits. In April, the trade deficit climbed to C$3.3 billion higher than the estimate of C$2.7 billion. This marked the largest deficit since January. Later this week we will predict the trade balance number. Adding to the loonie’s woes, oil prices are lower as the viral spike adds concerns of an easing of demands. Brent crude futures are $0.73 lower at $40.30 per barrel, while U.S. West Texas crude futures fell $0.67 to $37.82. Oil demand concerns are once again on traders’ minds as virus outbreaks could prompt governments to impose restrictions again. 


There was some positive virus news out of China over the weekend as China’s Sinopharm Group mentioned that its second vaccine is safe and able to generate a high concentration of antibodies among participants in phase I and II clinical trials. China is also expected to enact the Hong Kong security law this week. The legislation is expected to drastically curb political protest and dissent in Hong Kong and is moving forward despite threats from the U.S. to strip the territory of its special trade status. This move will only add to the tension already in place between the US and China. If China goes ahead with this move, traders will keep a keen eye out for reaction from the Trump administration.


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