We start the week with risk sentiment being pulled in two directions.  On Friday news that China would buy more US farm goods initially boosted sentiment, but equities turned lower into the close on news that Apple would be closing some stores in parts of the US seeing an increase in Virus cases.  Stocks were also sold off into Fridays close as expected as a result of quadruple witching and closed down on the day. This morning variable headlines sent risk lower on the Asian open with Dow futures trading more than 500 points down but have now pared some losses and are trading near the highs of the session with the US futures just about in the green at 0.2%.

We think it is worth noting that the increase in cases in the US is driven by states still going through their first phase of the virus and it is also potentially driven by increased testing.  Some of the worst hit places such as Italy, Spain, New York and London are coming out of lockdown without a second spike.  The UK is lifting more restrictions and Boris Johnson is considering reducing the two-metre social distancing rule this coming Tuesday in order to help restaurants and bars when they potentially open on the 4th July, and BUBA believes the worst of the economic downturn has been seen.  However, in Germany the R rate has moved higher and in Australia tightening restrictions will support the risk off tone.

RBNZ on Wednesday.  Nothing expected, nothing priced. Governor Orr already noted last week that negative rates are a possibility but operationally banks are not ready for that yet.  He’s likely to strike a similar tone.  We are bearish NZD/USD, re-assessment level can be lowered from 6710 to 6680. The 200-day at 6322 is a natural initial target but the 100-day ~6200 looks increasingly do-able.

New Bank of Canada Governor Macklem speaks again tonight.  His testimony last week to the House of Commons gave us an indication of what he is thinking: BoC will buy govt bonds until recovery well underway, policy rate is at effective lower bound, economy still in a deep hole and a long way out, BoC not concerned about size of balance sheet, not a big fan of MMT.  Tonight’s speech is likely to be dovish and could be the catalyst to propel USD/CAD though June highs. I am tactically bullish USD/CAD while the pair hold above 1.35 support.

RBA’s Lowe spoke this morning.  He said that they are not at a point where AUD is a problem, would like to see it lower at some point but hard to argue AUD is overvalued. AUDUSD sold down to 0.68015 on the open as risk off moves continued from Friday as fears of a second wave of the virus persist.

It feels to us that positioning is very light now across G10 and that we are in for another choppy week for FX as risk sentiment continues to oscillate on and off., The recent risk off tone has sent USD back bid as it continues to track risk sentiment closely.  That has taken EURUSD down to a low of 1.1168. This will have cleared out any longs that bought at bad levels up around 1.1400 so the pair could possibly rally back into the 1.1200-1.1400 range from here. GBP seems to have fallen victim to the USD buying which took EURGBP up through 0.9055 resistance to trade up to 0.9073, and it might be worth fading EURGBP here.  The next date of note for Brexit negotiations is the end of October deadline so until then the risk for GBP is higher if a deal can be agreed.

Gold has broken out of the daily triangle and through the resistance of 1747 and so far, traded a high of 1758, ideally we would like to stay above and close 1747 in order to test 1770 and then 1800. Today’s data docket is very light so will need to look for clues elsewhere.

USDJPY – remained in a tight range overnight and is on the upper band of the 106 handle. There was a bit of talk the Japanese might be interested again to buy more foreign bonds, so will need to keep an eye out for this as if this is the case it will support USDJPY. Intraday range remains tight 106.70 and 107.10 a move through the support zone would open way for 106.20 whilst a move through resistance would open way for 107.30/50 and offer better levels to sell.

EURUSD – we saw continued selling on Friday as the pair traded lower as risk was sold off. Our last support zone held at 1.1170 but it must be said that our bullish view is now really stretched, a move through the support and we will sit on the side lines for now till then we maintain our view holding onto it by our fingernails. We really need to see stocks pick up otherwise the view could be extinguished today.  Second wave fears appear to be the main driver for now, but stocks have pared back overnight losses so will need to see how they trade today and what effect it has on risky assets. The EU aid deal is still on the table, but it could now take a few weeks till it comes back on the agenda therefore the common currency will really be depending on stocks to continue their move up for interim support. 1.1170 and 1.1230 will be the intraday range with a break of the latter opening way for 1.1120 and potentially 1.1080, a break of the topside resistance would alleviate the downside pressure.

GBPUSD – cable was sold off last Thursday and Friday as it appeared that some very big flow went through EURGBP which I cannot confirm but price action did suggest it even the better UK retail sales could not help the pair. With pressure on risk at the moment GBP has remained heavy so far and are currently trading in the middle of the range at 1.2370. The BoE was rather constructive of the economy going forward so was surprised to see GBP come off so much. Support is now at 1.2320 and the risk reward now favours going long, with a stop below this level looking for a break of 1.2420 and then 1.2480.  Over the weekend Chancellor Sunak said in the times that he was planning an emergency cut in VAT to help the economy Whilst Boris Johnson was considering reducing the current 2 metre social distancing to 1 metre in order to help bars and restaurants once they are open. We await flash PMI’s tomorrow for a more up to date picture of matters. BoE Bailey did say that the balance sheet could shrink before raising rates in order to give the bank more firepower in future crises.

FTSE 100 – the FTSE ended Friday’s session a tat higher as the pound retreated and oil prices got bid supporting bullish momentum on the index as investor’s await on a possible VAT cut to further support a hard hit economy while increasing COVID-19 continue to weigh on further gains. An hourly close below our support at 6223 will favor lower prints with 6162 as the closest support target as the index trades below the 20,50 and 100 period SMAs.

DOW JONES – the Dow hit our support target at 25,797 on Friday with bearish momentum persisting in early session today as our support turns into resistance with the index printing a lower high at 25,797 as investors remain skittish with COVID-19 hot-spots re-emerging in the U.S with Apple closing stores in four different states. A failure to print an hourly close above 25,797 will favour further downside with 25,506 and 25,227 as closest support targets.

DAX 30 – our support target at 12,106 was hit in early trade today weighed down by Wirecard’s vanishing $2.1 Billion and a German R rate that hit 2.88 as WHO reported more than 183,000 new global Coronavirus cases. With the index printing a lower high and trading below all moving averages on the hourly chart, a close below 12,106 will favour further downside with 11,900 as the closest support target.

GOLD – continues to print higher in early trade today, after breaking above the upper band of our consolidation channel at $1730 on Friday on concerns about the pace of economic recovery and reinstating lockdown measures in some states, on the back of increasing fears of a second wave in COVID-19 with California cases rising to new record highs. Bullish momentum will remain strong as long as the yellow metal doesn’t retrace below $1744, with $1764 as the closest resistance target.

US OIL – WTI ended Friday’s session in the green, closing at $39.42 pbl after news that China agreed to step up purchases from the U.S boosted investor sentiment and Baker Hughes Rig Count data continued to decline for the 14th straight week with the latest reading coming in at 266 vs. a previous of 279. Prints below our uptrend and our support at $39.27 will favour further retracement lower with $38.50 and $38 as the closest targets.

 

Rony Nehme
Chief Market Analyst at SquaredFinancial

Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

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