Global coronavirus cases exceeded 10 million on Sunday and the number of new daily cases hit records in several US states over the weekend, prompting President Donald Trump’s re-election campaigns to be postponed. Several US states reversed lockdown measures including Texas, California and Florida.  Florida authorities have closed beaches and California has closed bars.  Some analysts believe this is still the tail end of phase 1 as opposed to a new phase 2 however, will need to see how these develop and whether it spreads to all the other states. It’s also important to note that currently mortality rates in the US are 90% lower than at its peak and this is something which is not being reported.

Outside the US, the other fastest-growing case counts are all in emerging markets – India, Indonesia and South Africa are major concerns and Latin America is the most worrying region, with Brazil leading the count in cases and deaths.  As economic reopening continues despite worsening outbreaks, it feels that an unstable equilibrium is developing.

A growing list of companies are boycotting Facebook and social media advertising in general due to politically polarising content on their site.  Facebook stock fell 8.3% on Friday after Unilever’s decision to pull advertisements.  As one of the famous FANG stocks and the fourth largest member of the S&P500 this story is likely to impact broader risk sentiment.

China Industrial Profits were up 6% YoY in data released over the weekend.

Powell speaks before the House Financial Panel on Wednesday and we also get FOMC the same day. Other key events this week include, the US employment report (NFPs), ISM manufacturing, housing data and consumer confidence; CPI inflation data across the Euro area, GDP in the UK; and PMI data in China.

Gold approaching resistance at $1,800. Net long positioning in futures as a share of open interest is at 33%.  This was as high as 45% in March so there is room for the market to add if the risk off tone continues.

EURUSD still being dominated by the whip back and forth of the USD and risk sentiment, same with GBPUSD and all of G10 really. We still like EURUSD higher in the medium term but feel risk sentiment and month end flows are likely to dominate in the short term so we prefer to wait before edging into longs.

GBP continues to keep the market interested with some starting to look to be long GBP for the small chance that Boris finds some concession to give the EU to make good on his promise to get a Brexit deal in July. The Telegraph reported over the weekend that senior conservatives in the ERG would reject any compromise that would allow the UK to diverge from EU rules but resulting in instant tariffs. They claim that this still effectively ties the UK to EU rules.  This compromise that allows the UK to undercut EU rules in theory but not in practice seems to be the only workable solution at the moment.

We therefore continue to lean towards playing NZDJPY and AUDJPY from the short side as we expect the usual G10 risk off moves to hold if equities come off >3%.  Worth noting AUDJPY June 12th lows at 72.53, trend line at 72.40 and 200dayMA at 72.27 offer support.

Equities closed on their lows last Friday as investors took risk off the table entering the weekend worried about the increasing number of new cases of covid19 in the US.  Today stocks opened softer, with the S&P hitting a low of 2993 it has since pared back some of the losses and we are currently trading around 3010.  We still have month end flows to contend with which are supposed to be USD buying vs EUR and stock selling, if this is to be the case then expect to see very little rallies in stocks till the flow has been executed.  There has been some good news out of China regarding a covid19 vaccine (Ad5-nCOV) which has received special military approval however, for now it cannot be expanded to a broader vaccination range without further government approval. Towards the end of the week we have ADP and NFP where a good data print would lend support to equities.

USDJPY – the DXY this morning is on the back foot trading around 97.22, 97.09 still remains the level it needs to break on the downside however, USDJPY still remains in a tight range, the pair currently follows risk on/off tone and then other times it follows the USD which is why it’s very much in a push/pull scenario. For now, we respect the range and sell towards 107.25/30 and then 107.70/75 and buy back towards 107.00 and 106.80.  We may see some movement as we approach the month end flows and also the US jobs numbers later on in the week.

EURUSD – for now the single currency has respected the downside support areas of 1.1180 and the very important 1.1160 and is holding its own.  As we have already mentioned the weakness in the DXY is lending support to the pair and a break above 1.1280 would be ideal in order to reduce the downside risk.  The only issue we have to contend with is month flows which currently are pointing to strong USD buys vs EUR therefore, a break above our resistance zone before these flows would mean we may have less chance of revisiting last week’s lows.  We still advocate buying these dips however, a breakthrough 1.1160 and we will readdress this view.

GBPUSD – cable tested the 1.2307 level on Friday but has held very well again and have seen a nice rally off that level and are currently trading around 1.2380 as we write. We think this move higher is on the back of the current weakness we are seeing in the broad-based USD as Brexit headlines are not looking that great Merkel is turning the screw on Brexit and gets tougher and Boris Johnson has yet again threatened to walk away from talks. We are still very much GBP bears but fell we could see better levels to sell into as feel now that the short-term market is a tad stretched on shorts. The IMM increased their net shorts by 3K last week. On the topside we really need to break 1.2415/20 to then test the trend line of 1.2450 whilst on the downside a break of 1.2307 would open way for 1.2200.

DOWJONES – dropped by more than 700 points on Friday, as Coronavirus jitters augmented and risk off sentiment dominated , hitting our support target at 25,227 and confirming it from below as resistance level in early session today. Risk off sentiment is expected to continue in today’s session as the U.S Health Secretary warned overnight that the “ window is closing ” (to stop the virus). An hourly close below 24,975 will boost bearish momentum with 24,555 as the closest support target.

FTSE100 – the blue-chip index followed its peers, ending Friday’s session 1% lower on the back of WHO confirming global deaths from Covid-19 reached half a million, as the index breached below our support now resistance level at 6162. The FTSE is better poised for gains vs. its peers ahead of Boris Johnson’s fiscal stimulus expected announcement tomorrow ( in the form of infrastructure spending projects) with all eye’s today on the BOE’s consumer credit data. Failure to print an hourly close above 6162 will confirm continued bearish momentum with 6100 and 6050 as the closest support targets.

DAX30 – global indexes kick of the week on a risk off tone as Coronavirus cases topped 10 Million with confirmed deaths surpassing 500,000 as WHO reported the most infections for a single day. Investors await an array of Eurozone business and sentiment data to be released today as the index printed an hourly close below our support level at 12,035 favoring further downside with 11,800 as the closest support target.

GOLD – hit our target at 1752 on Friday on the back of a rebound in consumer spending, bouncing off the 200-period SMA as the yellow metal ended the week at a fresh 7 year high close at 1769.90 and U.S Treasuries fell as Coronavirus infections continued to surge. The yellow metal confirmed our resistance at 1767 as support level, favouring further bullish momentum with 1780 and 1790 as the closest resistance 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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