FX continues to be led predominantly by equities.  The USD is currently showing a strong negative correlation to equities and risk sentiment which is influencing all major currencies.  We started this week with a bout off risk aversion and it still feels that risk will be bought on dips as the market is still significantly underweight equities and needs to allocate cash to avoid the fear of missing out on any V-shaped recovery.  However, markets will be choppy with bouts of risk aversion as new cases of the virus emerge.

Overnight there was a story on FOX News that White House trade advisor Navarro had said the US-China trade deal was over weighed on risk sentiment.  This was then denied and is a perfect example of how choppy markets can be with the backdrop of so much geopolitical friction and uncertainty surrounding the virus.  It also shows the importance of not chasing the market.

Germany’s finance minister said the stand-off between the GCC and the ECB over the central banks bond buying is about to be resolved “without drama”.  The ECB publishes the account of its last meeting on Thursday which details the proportionality assessment of the bond buying.  This should ease any concerns that the German court ruling could limit future ECB action.

Boris Johnson and Ursula von der Leyen are both showing a commitment to reaching a Brexit deal. The UK is hammering out a plan to unblock talks this week and Ursula von der Leyen said that the EU was “ready to be creative to find common ground where there seems to be none”.  It feels that the moves from the UK and EU sides in working towards a Brexit deal are somewhat encouraging given the low expectations. The UK is hoping to find a compromise of being able to diverge from EU standards with an understanding that the EU will hit them with tariffs if they undercut the EU.  Given that Boris is hoping for a deal in July some form of compromise like this is possible.  The market still feels that the chances of a deal being reached are low but the risk for GBP is now to the topside ahead of the next deadline at the end of October as expectations for a deal are so low. EURGBP resistance at 0.9073 high.

Gold rose to a seven-year high, while oil rose around 2 per cent and sits above USD40/bbl for the first time since early March.

Beijing reported 13 local coronavirus cases for June 22nd. Victoria Australia recorded another 17 cases and New Zealand reported another 2 cases.  So Beijing and Australia numbers seem manageable at present. Florida and California cases continue to increase at a more worrying rate.

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.

USDJPY – jumped up overnight as risk was sold off as a result of the Navarro comments hitting a high of 107.21 and still respecting the resistance of 107.30/35. Later today we have PMI’s for our next clue on how the economy is doing. However, the pair is still very much in a very tight range, not going anywhere and is rather boring and wit that there is very little interest in it. The range still remains 106.80/107.30/35.

EURUSD – what a turnaround the single currency has had since the weekend close at 1.1170. We did see a nice rebound yesterday hitting a high of 1.1280 overnight and we find it hard to justify a valid reason other than the USD was on the backfoot all day yesterday.  The support zone of 1.1170 has held very well and this now remains critical if we are to resume the uptrend.  On the topside 1.1275/80 remains the are we need to break to continue this move otherwise we feel we could see about of consolidation.  Later this morning we have European PMI’s which will be very important and need to be good in order to maintain this bullishness. The pair has been further supported by the move higher in EURJPY and we are now comfortably over the 120.25 level. A move below 97.09 in the DXY will also help EURUSD push past 1.1280 and onto the next area of 1.1330.

GBPUSD – cable has arisen from the ashes after looking very heavy at the end of last week. As we mentioned the move lower in GBP last week did not really make much sense and it appeared to be more flow driven. The 1.2307 held very well and yesterday we saw a very strong bounce hitting a high of 1.2505 overnight. Headwinds are still very much there particularly Brexit uncertainty and with this in mind we still favour selling rallies but not until we at lest see a 1.2600 handle. For today 1.2515/20 remains very good resistance and we think it will take something special to break this today. The range to watch today will be 1.2400/1.2520. The UK today expects to hear Boris Johnson relax social distancing measures to 1 metre as long as people are wearing masks in order to help bars and restaurants should they open on 4th July.

FTSE100 – managed to end yesterday’s session slightly in the green as it continues to trade in a consolidation channel between our support/resistance at 6223 and 6307 as investors weigh further easing of lockdown restrictions vs. increased global COVID-19 cases, especially in Germany and the States. Investors focus on PMI data ahead of BOE’s Gov. Bailey’s statement, which should provide the momentum needed for a breach outside/above our consolidation area.

DOWJONES – “It’s Over. Yes.” the misunderstood comment by Peter Navaro that sent the Dow futures index 500 points lower before erasing losses on a Trump’s tweet, confirming that the trade deal is “fully intact”. The latest top around our resistance level at 26,155 is key as investors look ahead today to PMI data for cues on the progress being made amid the opening of the economies, with better than expected figures favouring bullish momentum.

DAX30 – ended yesterday’s session in the green and above the 200 period SMA on the daily chart despite Germany’s spike in R rate, with investors looking ahead today to Eurozone, French, and German PMI data for signs of continuing economic recovery with 12,572 as the closest resistance target on an hourly close above our resistance at 12,380.

GOLD – ends yesterday’s session above the $1750 level at $1754 after hitting our resistance target as it printed a high at $1763.54 on the back of surging COVID-19 cases around the world spurred demand for the safe haven. Investors eye a basket of PMI data out of the U.S today along with New Home Sales, with better than expected data to hinder upside momentum as the yellow metal trades between our support and resistance levels at 1750 and 1764 respectively.

USOIL – has reached a three months high for WTI as it ended yesterday’s session above $40 pbl as states continued to reopen their economies despite an uptick in Coronavirus cases. Trump reaffirmed that the China trade deal is fully intact after senior aid Navaro rattled markets answering a question related to the deal by “It’s over, Yes”. A volatile trading day ahead with Eurozone and U.S PMI’s to be released, along with API weekly crude oil stock, as we look for a break above or below our resistance/support for direction.

 

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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