The USD is trading lower this morning as traders once again are looking at taking on risk trades that are unfavorable to the USD. Although there is a rise in cases both in the US and abroad, hopes for a vaccine have equity markets moving higher. US jobless claims will be released this morning and the number of people filing for first time unemployment was released at 1.314 million from last week’s 1.413 million. The improvement in May and June payrolls has not been seen in new unemployment claims. The four-week moving average for claims has not been below one million since March 20. This number has not had a “shock” value in several weeks as investors seem to have become used to over 1 million people filing. The decline in the number each week seems to add confidence to the fact that the economy, while moving somewhat slower than expected, is improving despite the surge in viral cases as states continue to re-open. US equity markets had a good day yesterday as the DOW finished almost 180 points higher. Given the fact that initial claims will be reported an hour ahead of the opening, any radical change in the anticipated number could affect the equity markets. In a speech made yesterday, Boston Fed President Rosengren said he expected the economy to remain weaker than expected through the summer and fall. He also stated that the Fed’s Main Street Lending program could grow over time and that the program will be “an important way to make sure that firms don’t close”. US Treasury yields were trading lower overnight with the 10-year note trading at 0.6512% and the 30-year bond trading lower at 1.3859%. It should be noted that as traders take on risk and forsake the USD, gold has broken through the $1,800 per ounce technical level. Looks like a down day for the greenback.
EUR/USD is higher this morning, having reached levels not seen since early June as the single currency had moved into an overbought situation. While technically, the RSI level is now back below 70, it remains in the high 60’s. Momentum remains positive as the EUR is trading above the 50, 100, and 200-day moving averages. As the increase in global equity markets has pushed the safe-haven USD lower, the EUR is among the beneficiaries. European leaders have yet to agree on the EU Fund and a summit is scheduled for next week. German Chancellor Merkel and French President Macron, the creators of the plan, are urging countries to act. The 'Frugal Four' are still reluctant to adopt the plan. The Prime Minister of Italy, Roberto Gualtieri, said his country would use the bailout fund, insisting there is no stigma attached in doing so. Overall, it looks like the EUR should remain better bid against the USD.
GBP/USD is also trading higher this morning after the UK Chancellor Sunak presented a GBP30 billion stimulus package and promised additional support. Technically, the GBP/USD finds itself in a similar position to the EUR. In fact, RSI levels remain above 70, currently at 77, indicating an overbought situation which could lead to some selling and profit-taking. The currency pair is trading above the 50, 100, and 200-day moving averages, so momentum remains positive. Part of the stimulus package includes a GBP10 voucher for eating out in August, an attempt to get the economy moving in a positive direction. The stimulus package also includes a job retention plan that will include retraining programs for young workers. According to Chancellor Sunak, this is only the beginning, and depending on the reaction in financial markets further injection of funds is possible. Brexit negotiations continue but no breakthrough is seen. German Chancellor Merkel commented about the need to prepare for a no-deal Brexit. As in the other currencies, GBP is taking advantage of traders selling the USD and this should continue throughout the day.
USD/JPY is trading lower this morning as well, as the 50-day moving average has crossed the 100 and 200-day moving averages, indicating downward momentum should continue. After trading below the RSI oversold 30-level earlier overnight, the currency pair has moved above 30, currently trading at the 34-level. As the USD remains pressured, expect the USD/JPY to move lower. In the branch managers’ meeting, Bank of Japan Governor Haruhiko Kuroda said “economic activity is expected to gradually resume”. But he did reiterate that for the time being the severe situation will continue due to the impact of viral diseases both inside and outside Japan. Once the impact of the infectious disease subsides, he expects that pent-up demand will emerge and recovery in production is expected, which will allow the Japanese economy to improve. As for monetary policy, Kuroda indicated that the Bank will closely monitor the effects of any new coronavirus infection and would take additional monetary easing measures without hesitation.
USD/CAD is trading lower this morning as well, following sustained USD selling across the board, despite the drop in oil prices overnight. Technically, like the rest of the currencies, USD/CAD is in an overbought situation with the RSI level below 30, currently trading at 26, and the 50-day moving average dipping below the 100-day moving average. As oil prices have eased overnight, the USD/CAD could be set to reverse course and head higher if prices continue to fall. Brent crude futures fell $0.07 overnight, to $43.22 per barrel, while U.S. West Texas Intermediate crude futures fell $0.14 to $40.75 per barrel. Both prices had been higher in trading on Wednesday. Continued concerns over renewed virus-related lockdowns in the US seem to be outweighing signs of recovery in the US. According to a report from Reuter’s, the Canadian budget deficit is now forecast to hit C$343.2 billion ($253.4 billion), the largest shortfall since the Second World War, amid record emergency aid spending in response to the COVID-19 pandemic, according to Canada's finance department. This forecast is far higher than the C$28.1 billion that Canada's ruling Liberals had projected back in December 2019, before much of the Canadian economy was temporarily shut down to curb the spread of the novel coronavirus. Budgetary revenues are set to fall to levels not seen since the Great Depression and could fall twice as much as what occurred during the aftermath of the 2008 global financial crisis. It would appear that the USD/CAD should bounce back at some point given these circumstances.