The US dollar went back and forth during the course of the week, hanging around the ¥107 level yet again. This seems to be a bit of a magnet for price, as it is in the middle of the larger consolidation area between the ¥105 level on the bottom and the ¥109 level on the top. At this point, it looks as if the market is trying to pick the next direction, so you are better off simply waiting on some type of impulsive candlestick to get involved. Ultimately, I think that longer-term traders will probably continue to avoid this market, and quite frankly I think they probably should.
USD/JPY Video 01.06.20
When we do make that impulsive candlestick, then you can follow the market for a couple of hundred tics. Ultimately though, the market looks highly likely to see some type of decision eventually. At this point, this is a market that is probably easier to trade on short-term charts, as an investment would be a bit difficult.
Ultimately though, I do think that we will get that signal as to where we are going for the next 500 points, but right now we are not anywhere near making that decision so I would be cautious about putting too much money into this market in the meantime. If you are patient enough, you should get some type of trend to follow, but right now we clearly do not have land when it comes to these two currencies, which both are thought of as “safety currencies”, so it should not be a huge surprise.
The US dollar has broken down significantly against the Japanese yen on Friday, dropping about 80 pips by the time New York started. While that is not a huge move, it is relatively big for the last couple of weeks. The market stopped just above the ¥107 level and hung about there, so I think at this point it is likely that the area could bring some buyers in this vicinity, but if we were to break down below the ¥107 level, it opens up the possibility of a move down to the ¥106 level where we had seen a bit of a bounce.
USD/JPY Video 01.06.20
To the upside, the 50 day EMA continues to hang above the ¥107.75. A break above there opens up the possibility of a move towards the 200 day EMA, which at this point I think that the sellers would be an influence as well. Ultimately, this is a pair that continues to chop around, and it should consider that both of these are considered to be “safety currencies.”
Ultimately, that causes a lot of noise here so looking at this chart it is obvious that the volatility is going to continue to be a major influence, so it is difficult to trade this market for a bigger move until we get some type of clarity. I do not have clarity at this point, so it is short-term back-and-forth, probably in increments of 20 or even 30 pips. I would not put huge positions on here either.
In today’s analysis, we will focus on commodities: Gold and Oil. In the previous months, Gold was climbing has been mostly moving higher and oil has been declining. Despite the most recent rise in the price of Brent and a small decline in the price of gold, we think that we are about to see a comeback to the dominant trend. In both cases, gold has a nice bullish signal and oil is drawing rather bearish pattern.
First, lest start with Brent Oil, where its price has doubled since the end of April. In the last two weeks, the upswing stopped and the price is creating a head and shoulders pattern. The price is creating the right shoulder of the pattern. The main up trendline was already broken but the neckline is still intact. In this case, the price breaking the neckline can be a nice selling opportunity.
The second instrument is Gold, where the price is currently breaking the upper line of the flag formation. The flag was a correction in the bullish trend, so it promotes another wave up. The real, legitimate buy signal will be triggered, when the price will break the horizontal resistance at 1735 USD/oz.
The last instrument is not a commodity but the USDJPY pair which is definitely worth mentioning. This Friday is crucial for this pair as the price has managed to escape from the recent sideways trend. Sellers broke two up trendlines and the lower line of the rectangle pattern. Currently, we are testing this last support as a resistance. The test so far is positive for sellers, which may indicate a willingness for a further slide. Sentiment here is negative.
It was a relatively busy day on the economic calendar this morning. The Japanese Yen and Aussie Dollar were in action early in the day.
Away from the economic calendar, the markets responded to Trump’s announcement on Thursday of plans to unveil measures against China at the news conference later today.
Fiscal stimulus from Brussels and the easing of lockdown measures across the EU and the U.S had provided support to riskier assets ahead of today’s open.
Looking at the latest coronavirus numbers,
On Thursday, the number of new coronavirus cases rose by 112,124 to 5,900,627. On Wednesday, the number of new cases had risen by 110,221. The daily increase was higher than both Wednesday’s rise and 106,139 new cases from the previous Thursday.
France, Germany, Italy, and Spain reported 5,612 new cases on Thursday, which was up from 1,892 new cases on Wednesday. On the previous Thursday, 1,976 new cases had been reported.
From the U.S, the total number of cases rose by 22,413 to 1,768,216 on Thursday. On Wednesday, the total number of cases had risen by 20,392. On Thursday 21st May, a total of 28,089 new cases had been reported.
The uptick on Thursday will need to be monitored in the coming days. With the easing of lockdown measures now in the 4th week, it would be in the coming days that a 2nd wave would become evident…
For the Japanese Yen
Inflation was in focus in the early part of the day, along with industrial production and retail sales figures.
In May, the Ku-area of Tokyo saw inflationary pressures return, with core consumer prices rising by 0.20% In April, consumer prices had fallen by 0.10%, year-on-year.
Business credit rose by 0.1%, following a 3.1% rise in March.
Personal credit slid by 3.0%, following a 1.4% decline in March.
Housing credit rose by 0.2%, which was down from a 0.3% rise in March.
The Aussie Dollar moved from $0.66312 to $0.66315 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.08% at $0.6642.
At the time of writing, the Kiwi Dollar was down by 0.11% to $0.6203.
The Day Ahead:
For the EUR
It’s a busy day ahead on the economic calendar. Key stats include French and German retail sales figures for April and the Eurozone prelim inflation numbers for May.
Prelim inflation figures for France and Italy and 2nd estimate GDP numbers for France are also due out.
We will expect the numbers to have a muted impact on the EUR, however. The EU’s recovery plan and the continued easing of lockdown measures remain positives.
While COVID-19 news and updates remain EUR positive, the markets will need to monitor the number of new cases. On Thursday, there was an uptick. If an upward trend begins, this could question member state plans to ease lockdown measures further.
From the early part of the day, it was risk aversion that pinned back the EUR as the markets await Trump’s news conference later today.
At the time of writing, the EUR was up by 0.07% to $1.1085.
For the Pound
It’s yet another quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.
Through the day, expect market risk sentiment and any Brexit chatter to be key drivers.
At the time of writing, the Pound was up by 0.01% to $1.2322.
Across the Pond
It’s another busy day ahead on the U.S economic calendar. Economic data includes April inflation and personal spending figures and May consumer sentiment and Chicago PMI numbers.
Expect the May figures to have the greatest influence, with the markets likely to brush aside April numbers.
Outside of the numbers, FED Chair Powell is scheduled to speak. Any commentary on the U.S economy and monetary policy will garner plenty of attention.
The main event of the day, however, is Trump’s news conference. What does the U.S President have in store for China?
The US dollar has gone back and forth during the trading session on Thursday, reaching towards the ¥108 level yet again. That is an area that has been quite difficult for the market to get out of, as the ¥107 level has been massive support. Ultimately, this is a market that continues to be difficult to deal with for anything more than a short-term trade. Ultimately, the market will make a decision, but right now it is only deciding to go sideways. This makes quite a bit of sense that the market would do this, simply because the US dollar and the Japanese yen are both considered to be safety currencies, so that will continue to be a major issue to deal with.
USD/JPY Video 29.05.20
Looking at this chart, we are also right at the 50 day EMA, so that of course causes a lot of attention to be paid to the market there as well. Ultimately, this is a market that I think is eventually going to make an impulsive move, and when it happens it will be obvious. Those obvious impulsive candlestick should give us a heads up as to what to do next, so I will be watching that. Ultimately, this is a market that I think will eventually offer great returns, but we are nowhere near that right now. Short-term I believe that this is a market that simply offers a lot of back-and-forth trading which is perfect if you are a short timeframe type of person. Otherwise, you will probably have to wait.
The Dollar/Yen is edging higher for a second-session early Thursday. Despite the stronger demand for higher risk assets, investors are starting to move money back into the U.S. Dollar due to its appeal as a safe-haven asset.
Investors have been tentatively buying stocks this week on optimism over the reopening of the U.S. economy and progress being made toward a coronavirus vaccine. However, they have also been expressing concerns over simmering U.S.-China trade relations as they await the announcement of the U.S. response to China’s security proposal designed to suppress pro-democracy protestors in Hong Kong.
Additionally, on Wednesday, Secretary of State Mike Pompeo targeted Beijing over its efforts to tamp down on dissent in Hong Kong, announcing that the State Department no longer viewed Hong Kong as autonomous and reiterating U.S. support for anti-government protesters there.
Meanwhile, China has warned that it will retaliate against any sanctions imposed and denies the allegations of abuse inside its reeducation camps, which are believed to house as many as a million Uighurs, ethnic Kazakhs and members of other minority groups.
At 03:40 GMT, the USD/JPY is trading 107.809, up 0.089 or +0.08%.
With the spread between U.S. Government bond yields and Japanese Government bond yields extremely tight, the carry trade is nearly non-existent. When the spread is wide, investors tend to borrow at low interest rates from Japanese Yen, sell Yen then buy dollars to invest in U.S. stocks. Essentially, when there is demand for risk, the USD/JPY rises.
But since the outbreak of the coronavirus pandemic and the plunge in U.S. interest rates, traders have not adhered to the carry trade. Instead, traders have been treating the U.S. Dollar as a safe-haven asset.
We may be seeing a little of that going on at this time as investors flock to the greenback at the earliest sign of market unrest. It’s not about the economies of Japan and the U.S. at this time, but rather where can an investor get protection and earn some interest at the same time. Right now, that place is the U.S. Dollar.
The carry trade is not likely to come back in full-force until the spread widens significantly between the U.S. and Japanese debt instruments.
It was a relatively busy day on the economic calendar this morning. The Aussie Dollar and Kiwi Dollar were in action once more.
Away from the economic calendar, the markets also responded to the moves across the EU and the U.S from Wednesday.
Fiscal stimulus from Brussels and the U.S government’s moves to further reopen the economy provided both support for riskier assets early on. Market sentiment overshadowed economic data that remained weak while improving …
For the commodity currencies, however, concerns over rising tensions between the U.S and China did pin back any breakouts.
Looking at the latest coronavirus numbers,
On Wednesday, the number of new coronavirus cases rose by 110,221 to 5,788,503. On Tuesday, the number of new cases had risen by 95,878. The daily increase was higher than both Tuesday’s rise and 89,941 new cases from the previous Wednesday.
France, Germany, Italy, and Spain reported 1,892 new cases on Wednesday, which was up from 1,535 new cases on Tuesday. On the previous Wednesday, 3,225 new cases had been reported.
From the U.S, the total number of cases rose by 20,392 to 1,745,803 on Wednesday. On Tuesday, the total number of cases had risen by 19,185. On Wednesday 20th May, a total of 21,774 new cases had been reported.
For the Kiwi Dollar
Business Confidence improved in May, with the ANZ Business Confidence Index rising from an April -66 to a finalized -41.8. May’s prelim had come in at -46.
The U.S. Dollar is trading higher against a basket of major currencies late Wednesday after reversing earlier weakness. After feeling some early session selling pressure, the greenback was able to stabilize and move higher against the Euro, British Pound, Canadian Dollar and Japanese Yen.
The move against the Euro came about even as the common currency remained supported by news of a proposal for an economic recovery package to help the Euro Zone region recover from the coronavirus pandemic.
Sterling retreated below $1.2300 as investor focus shifted back to the possibility of negative interest rates in Britain and comments from government officials that not much progress had been made in Brexit negotiations.
Worries about the U.S. response to China’s proposed security law for Hong Kong helped drive U.S equity indexes lower during the cash market session, which in turn increased the U.S. Dollar’s appeal as a safe-haven asset. This move led to lower demand for the Japanese Yen.
The main trend is down according to the daily swing chart. A trade through the intraday low at 98.715 will signal a resumption of the downtrend, while a move through the 98.345 swing bottom will reaffirm the downtrend.
The minor trend is also down. A trade through 99.995 will change the minor trend to up. This will also shift momentum to the upside.
The main range is 94.530 to 103.960. Earlier today, the index attracted buyers when it tested its retracement zone at 99.245 to 98.130.
Daily Swing Chart Technical Forecast
Based on the early price action and the current price at 99.240, the direction of the June U.S. Dollar Index into the close on Wednesday is likely to be determined by trader reaction to yesterday’s close at 98.906.
A sustained move over 98.906 will indicate the presence of buyers. This will also put the index in a position to form a potentially bullish closing price reversal bottom. If confirmed, this could trigger a 2 to 3 day counter-trend rally.
Overcoming the 50% level at 99.245 will indicate the buying is getting stronger. This could trigger a rally into the next 50% level at 99.690.
A sustained move under 98.906 will signal the presence of sellers. This could trigger a test of the main bottom at 98.345, followed by the major Fibonacci level at 98.130.
The Euro stood tall against almost every single G10 currency, marching towards a fresh two month higher against the dollar as investors took heart from this positive news. Given how the currency has struggled since falling in March when market players sprinted towards the Dollar’s safe embrace, it could be time for the Euro to shine.
Given how the European Commission coronavirus economic recovery package may boost the likelihood of a synchronized recovery across Europe, the longer term outlook for the Euro is encouraging.
Taking a look at the technical picture, the EURUSD is turning bullish on the daily charts with prices trading around the 1.1000 resistance level as of writing. A solid daily close above this point should signal a move higher with 1.1090 acting as the first point of interest. If the upside momentum propels prices above this point, the EURUSD could venture towards 1.1150 in the medium term.
Alternatively, a decline towards 1.0850 will be on the cards if 1.1000 proves to be reliable resistance.
Dollar waits for fresh catalyst
Where the Dollar concludes this week will be influenced by US-China trade tensions and optimism over economies reopening after an extended lockdown period.
Expect the dollar to appreciate against most G10 currencies if risk aversion makes an unwelcome return during the second half of the trading week. If the mood continues to brighten on economic hopes, then appetite for king Dollar may fall – ultimately sending the Dollar Index lower.
On the data front, preliminary US GDP data on Thursday and a speech from Jerome Powell at the end of the week could spark some additional volatility.
Focusing on the technical, it is the same old story. Prices remain in a wide range with support around 99.0. A strong daily close below this point may swing open the doors lower towards 98.50 and 97.80.
USDJPY eyes 108.00
If in times of uncertainty the Japanese Yen is a trader’s best friend, then what does it become in times of optimism and hope?
It has not been the best of trading weeks thus far for the Yen which has weakened against major currencies. As optimism over economies reopening overshadow trade tensions, appetite for the Yen and other safe-haven currencies are likely to fade in the near term.
A picture is worth 1000 words and this can be said for the USDJPY on the daily charts. Prices are trading near the 108.00 resistance level and could push higher if the Yen continues to weaken. A strong breakout above this point may open a path towards 109.40 in the near term.
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The US dollar has pulled back a bit during the trading session on Wednesday, but then shot higher towards the ¥108 level. That is an area that causes quite a bit of resistance as you can see, and now it is a question as to whether or not we can continue to go higher? I am looking for some type of short-term signal to start selling again, but only for something like a 40 PIP move. I think that the market is essentially stuck between ¥107 level on the bottom, and the ¥108 level on the top. Because of this, I do believe that the markets are just going to go back and forth until something changes overall.
USD/JPY Video 28.05.20
However, even if we break above the ¥108 level, I find it exceedingly difficult to think that we will simply slice through the 200 day EMA which is at roughly ¥108.30 above. In other words, I think the market is essentially going to continue to see a lot of noise. The ¥107 level underneath being broken to the downside could open up the move down to ¥106, possibly even the ¥105. Overall, this is a market that as you can see is very noisy, and difficult to trade for anything more than a quick scalp. That being said, if you are an intraday trader you may find this extremely attractive sledding, as it makes for an easy ride for those of you who like small time frames.
It was a relatively busy day on the economic calendar this morning. The Aussie Dollar and Kiwi Dollar were in action, with economic data out of China also in focus.
Away from the economic calendar, the market’s attention returned to U.S – China tensions and China’s security law for HK.
COVID-19 news and numbers did remain supportive, however, with positive vaccine news hitting the news wires in the 1st half of the week.
Looking at the latest coronavirus numbers,
On Tuesday, the number of new coronavirus cases rose by 95,878 to 5,678,282 On Monday, the number of new cases had risen by 83,824. The daily increase was higher than both Monday’s rise and 94,189 new cases from the previous Tuesday.
France, Germany, Italy, and Spain reported 1,535 new cases on Tuesday, which was up from 747 new cases on Monday. On the previous Tuesday, 2,848 new cases had been reported.
From the U.S, the total number of cases rose by 19,185 to 1,725,411 on Tuesday. On Monday, the total number of cases had risen by 19,790. On Tuesday 19th May, a total of 20,688 new cases had been reported.
Residential work done fell by 1.6%, quarter-on-quarter, and slid by 12.5% when compared with the 1st quarter of 2019.
Total construction work down fell by 6.5% in the 1st quarter, year-on-year.
The Aussie Dollar moved from $0.66512 to $0.66530 upon release of the figures. At the time of writing, the Aussie Dollar down by 0.11% to $0.6646.
Out of China
Industrial profit figures for April had little influence. Year-on-year, profits were down by 4.3%, following a 34.9% slump in March. Year-to-date, profits were down by 6.75%, following a 36.7% tumble in March.
The Aussie Dollar moved from $0.66512 to $0.66530 upon release of the figures.
At the time of writing, the Japanese Yen was up by 0.04% to ¥107.50 against the U.S Dollar.
The Day Ahead:
For the EUR
It’s a relatively quiet day ahead on the economic calendar. While there are no material stats due out of the Eurozone, the ECB and the EU Commission are in focus today.
In the early part of the European session, ECB President Lagarde is scheduled to speak. Expect any chatter on monetary policy or the economic outlook to influence. Lagarde’s speech precedes the release of the ECB’s Financial Stability Review. We will expect the review to be a key area of focus for the markets today.
With the ECB in focus early in the day, Brussels will also be in the spotlight. The European Commission is due to announce the COVID-19 Recovery Fund and EU Budget.
At the time of writing, the EUR was down by 0.10% to $1.0971.
For the Pound
It’s another quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.
A lack of chatter on Brexit and the risk-on sentiment has provided the Pound with further support this week. Expect any updates on Brexit and COVID-19 to test this support, however.
At the time of writing, the Pound was down by 0.06% to $1.2327.
Across the Pond
It’s also a quiet day ahead on the U.S economic calendar. Following Tuesday’s consumer confidence figures, there are no material stats to influence later today.
A lack of stats leaves geopolitics center stage. On Tuesday, U.S President Trump stated that there would be a U.S response to China’s plans for HK by the end of the week… Measures could include sanctions on China…
The Dollar Spot Index was up by 0.14% to 99.042 at the time of writing, with the U.S – China jitters providing support.
For the Loonie
It’s a relatively quiet day on the economic calendar. Building permit figures are due out later today that will likely have a muted impact on the Loonie.
With concerns over the U.S – China relations and the prospects of sanctions on China resurfacing, we can expect the Loonie to be under pressure.
Much will depend on how Beijing will respond to any steps taken by the U.S government. The continued easing of lockdown measures across major economies, remains Loonie positive, however.
At the time of writing, the Loonie was down by 0.06% to C$1.3785 against the U.S Dollar.
The Dollar/Yen tumbled on Tuesday as optimism about a potential coronavirus vaccine and a reopening world economy helped investors shrug off U.S-China tensions, dampening the Greenback’s appeal as a safe-haven asset. The Yen may have been supported by the news that Japan ended its state of emergency.
In other news, data on Tuesday showed U.S. consumer confidence nudged up in May, suggesting the worst of the coronavirus-driven economic slump was potentially over as the country starts to reopen.
At 22:50 GMT, the USD/JPY is trading 107.507, down 0.044 or -0.04%.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. The trend turned up on May 19 when buyers inched through the previous main top at 108.083. However, the lack of follow-through to the upside suggests momentum may be getting ready to shift to the downside. If the selling is strong enough, the trend will change to down on a move through the last main bottom at 105.987.
Helping to hold the USD/JPY in a trading range are a series of retracement levels.
The main range is 112.226 to 101.185. Its retracement zone at 106.706 to 108.008 is controlling the longer-term direction of the USD/JPY.
The short-term range is 105.987 to 108.088. Its 50% level at 107.038 is potential support.
Additional support is the intermediate retracement zone at 106.450 to 105.207.
The strongest area on the chart may be a support cluster at 106.706 to 106.450.
Daily Swing Chart Technical Forecast
Taking out 108.008 will be the first sign of strength, while a move through 108.088 will signal a resumption of the uptrend. This could trigger an acceleration into 108.851 to 109.527.
The inability to overcome 108.008 will signal the presence of sellers. If this creates enough downside momentum then look for the start of a labored rally with potential downside targets 107.038, 106.706 and 106.450.
The US dollar has rallied initially during the trading session on Tuesday, but then broke back down below the 50 day EMA. By doing this, the market looks as if it is eventually going to go looking towards the ¥107 level, something that makes quite a bit of sense considering that the level has been such a magnet for price. In fact, I think we are simply going back and forth between ¥107 on the bottom and ¥108 on the top. Ultimately, this is a market that is very noisy as per usual, as it has nowhere to be anytime soon. Keep in mind though that the market is sensitive to risk appetite, as both of these are “safety currency.”
USD/JPY Video 27.05.20
Looking at this chart, if we do break down below the ¥107 level, then it is likely that we go looking towards the ¥106 level underneath. On the other hand, if we break above the ¥108 level, then I think we are going to go looking towards the 200 day EMA, possibly the ¥109 level. All things being equal, this is a market that I think is more or less a short-term trading environment more than anything else, and therefore you cannot get overly hung up on hanging onto a trading position. Looking at this chart, I suspect that we are going to get more of the same back-and-forth type of trading, as we are far too tight to see some type of major move, at least in the short term.
The Dollar/Yen is weaker on Tuesday as investors shed the safe-haven greenback on growing optimism about a global recovery from the COVID-19 pandemic. Investors are in a risk-seeking mode, encouraged by ongoing progress in suppressing the coronavirus, which is allowing the gradual reopening of economies. At the same time, the record amounts of fiscal and monetary stimulus that have been put in place by governments and central banks is driving demand for riskier assets. In other news, Japan ended its state of emergency on Monday.
At 10:32 GMT, the USD/JPY is trading 107.679, down 0.050 or -0.05%.
BOJ’s Kuroda: Central Bank Ready to Ease Monetary Policy Further
Bank of Japan Governor Haruhiko Kuroda said on Tuesday the central bank was ready to ease monetary policy further such as by expanding its loan programs, cutting interest rates and ramping up risky asset purchases. Nonetheless, he maintained his gloomy outlook even as a state of emergency was lifted in the capital Tokyo.
“The BOJ is ready to do whatever it can,” Kuroda said in semiannual testimony to parliament.
Kuroda said Japan’s economy and price growth would remain weak for the time being, sticking to his pessimistic view even as the government lifted a state of emergency for Tokyo and four remaining areas on Monday.
“There’s a lot of concern on whether business will return to pre-pandemic levels even when the virus is contained,” he said.
“What’s important now is to ensure markets are stable so that once the pandemic is contained, Japan’s economy can resume a solid recovery path.”
Prime Minister Shinzo Abe lifted a state of emergency after the number of infections fell across the country. The move meant social distancing curbs would be loosened nationwide.
Meanwhile, data on Tuesday showed Japan’s services producer prices – or the price companies charge each other for services – fell 0.8% in April from a year earlier when excluding the effect of the sales tax, marking the biggest drop since 2011.
Today’s data suggests Japan is going to have a hard-time achieving a V-shaped recovery. Furthermore, the PPI data indicates the output gap is likely to worsen, making the economy vulnerable to deflation.
However, the gloomy outlook for the economy may have little effect on the Japanese Yen. With the spread between government bond yields tight, there is very little interest in the carry trade. So as demand continues to increase for risky assets, investors are liquidating long U.S. Dollar positions.
When the spread between U.S. Government Bonds and Japanese Government Bonds was wide, investors would sell Yen and buy Dollars when risk sentiment was bullish. Now they are doing the opposite after many bought dollars for safety during the early stages of the pandemic.
Equity markets have rebounded strongly. Nearly all the equity markets in the Asia Pacific region rose (India was a laggard) led by an almost 3% rally in Australia, which was seen as particularly vulnerable to the Sino-American fissure.
The Nikkei is approaching its 200-day moving average as it reached the best level since March 5. Europe’s Dow Jones Stoxx 600 is up around 1% after a 1.5% gain yesterday. It is at its best level since March 10.
The S&P 500 is set to gap sharply higher, above 3000, and its 200-day moving average for the first time since March 5. Benchmark 10-year bond yields are mostly firmer (US ~70 bp), but peripheral yields in Europe are softer, which is also consistent with the risk-on mood. Germany sold a two-year bond today with a yield of minus 66 bp and saw the strongest bid-cover in 13 years.
The dollar is heavy. Among the majors, the Antipodean and Norwegian krone lead the way. The yen is least favored and is struggling to gain in the softer dollar environment. Emerging market currencies are higher, led by more than 1% gains by the Mexican peso, South African rand, and Polish zloty. Gold is consolidating at softer levels (~$1725-$1735), while oil prices continue to recover. July WTI is probing the recent highs around $34 a barrel.
The risk-on mood has not been sparked by any sign of a thaw in the US-Chinese tensions. Indeed, the PBOC set the dollar’s reference rate against the yuan a little higher than the bank models suggested (CNY7.1293 vs. CNY7.1277). It was the second successive fix that was the highest since 2008. Still, the yuan snapped a three-day decline and rose less than 0.1%.
Legislation that makes it easier to crack down on dissent pressured Hong Kong, where the stock market fell more than 5.5% before the weekend, and forward points for the Hong Kong dollar exploded. The Hang Seng stabilized yesterday and gained more than 1.8% today. The 3-month and 12-month forward points are more than double what they were a week ago, but have eased from the extreme readings before the weekend. The situation is far from resolved despite the market moves.
The focus in Japan is on the government’s second supplementary budget for nearly JPY1 trillion. It could be approved by the Cabinet as early as tomorrow and would nearly double the government’s efforts. Japan is lifting the national state of emergency.
The dollar is firm against the yen but held just short of JPY108.00 (last week’s high was ~JPY108.10). There is an option for a little more than $400 mln struck at JPY107.90 that expires today. The market looks poised to challenge the highs in North America today. Note that the 200-day moving average is found near JPY108.35, and the greenback has not traded above it since mid-April.
The Australian dollar is punching above $0.6600 and is at its best level since March 9. Its 200-day moving average is found near $0.6660. The dollar peaked against the Chinese yuan at the end of last week near CNY7.1437. It rose against the offshore yuan on the same day near CNH7.1646, just below the high set on March 19.
The EU responded to Germany’s proposal to take at least a 20% equity stake (~9 bln euros) in Lufthansa by requiring it to give up some slots at airports in Frankfurt and Munich. Meanwhile, the larger focus is on the EC’s proposal for a recovery plan now that the German-French proposal has been countered by Austria, Denmark, Sweden, and the Netherlands.
However, the basis for a compromise does appear to exist in the form of some combination of grants, loans, and guarantees and in terms of access. With the European Stabilization Mechanism and the European Investment Bank issuing bonds for which there is a collective responsibility, we are not convinced that an EU bond is a step toward mutualization of existing debt or a fiscal union. In fact, such claims do little more than antagonize the opposition.
The ECB’s Pandemic Emergency Purchase Program (PEPP) has spent a little more than a quarter of its 750 bln euro facility in the first two months. Hints from some officials suggest that this could be expanded as early as next week when the ECB meets. At the current pace, PEPP will be out of funds toward the end of Q3 or early Q4. Talk in the market is that a 250-500 bln euro expansion is possible.
The political controversy of UK’s Cummings violation of the lockdown seems to have little impact for investors. Sterling, the worst performing of the major currencies this month, is bouncing back smartly today, and while the UK stock market was closed yesterday, it is playing a little catch-up today. The benchmark 10-year Gilt yield is a few basis points higher, but faring better than German Bunds and French bonds (where the 10-year yield is now back into positive territory, albeit slightly).
The euro has bounced a full cent from yesterday’s low near $1.0875. The market has its sights on last week’s high just shy of $1.1010 and the 200-day moving average a little above there. The euro has not traded above its 200-day moving average since the end of March. Above there, the $1.1065 area corresponds to about the middle of this year’s range. Sterling is near its best level in a couple of weeks.
After finding support near $1.2160 in the past two sessions, it bounced to about $1.2325 today to toy with the 20-day moving average (~$1.2315). The short-covering rally has stretched the intraday technical readings, and it may be difficult for the North American session to extend the gains very much before some consolidation.
The US reports some April data (Chicago Fed’s National Economic Activity Index) and new home sales. The reports typically are not market-movers even in the best of times. Moreover, it is fully taken on board that the economy was still imploding. May data is more interesting. The Dallas Fed’s manufacturing survey and the Conference Board’s consumer confidence surveys will attract more attention and are expected to be consistent with other survey data suggesting the pace of decline is moderating. This is thought to be setting the stage for a recovery in H2.
Canada’s economic diary is light today, and Mexico is expected to confirm that Q1 GDP contracted by 1.6%. Yesterday Mexico surprised by with a nearly $3.1 bln trade April deficit. The median forecast in the Bloomberg survey was for a $2 bln trade surplus. Apparently, none of the economists surveyed expected a deficit. Exports fell by nearly 41%, and imports tumbled by 30.5%. Many economists are revising forecast for Mexico’s GDP lower toward a double-digit contraction this year.
Nevertheless, the peso is flying. It is the strongest currency here in May. The 1.75% gain today brings the month’s advance to a dramatic 9%+ gain. The US dollar is near MXN22.10, giving back about half of this year’s appreciation. A break of the MXN22.00 area would target the MXN21.30 area.
The intraday momentum indicators are stretched. The US dollar is heavy against the Canadian dollar as well. It is approaching the lower end of its two-month trading range near CAD1.3850. The next important chart point is around CAD1.3800. Here too, the greenback’s slide in Asia and Europe is leaving intraday technicals indicators stretched as North American dealers resume their posts.
It was a relatively quiet day on the economic calendar this morning. The Kiwi Dollar was in action, with April trade figures in focus.
Away from the economic calendar, the markets continued to monitor HK and the U.S reaction to China’s security law. Progress of the bill to make it more difficult for Chinese companies to list on U.S exchanges and China’s response also remains a factor.
COVID-19 news and numbers, however, remained supportive, driving market optimism and demand for riskier assets.
Looking at the latest coronavirus numbers,
On Monday, the number of new coronavirus cases rose by 83,824 to 5,582,404. On Sunday, the number of new cases had risen by 101,608. The daily increase was lower than Sunday’s rise, while higher than 82,564 new cases from the previous Monday.
France, Germany, Italy, and Spain reported just 747 new cases on Monday, which was down from 1,470 new cases on Sunday. On the previous Monday, 1,916 new cases had been reported.
From the U.S, the total number of cases rose by 19,790 to 1,706,226 on Monday. On Sunday, the total number of cases had risen by 20,190. On Monday 18th May, a total of 22,231 new cases had been reported.
For the Kiwi Dollar
On the trade front, the trade deficit narrowed from a NZ$3,460m to NZ$2,500m in April. The monthly trade surplus jumped from NZ$722m to a record NZ$1,267m.
The total value of goods exports decreased by NZ$220m (4.0%) from April 2019 to hit NZ$5.3bn.
A fall of NZ$211m (-69%) in the export of logs pinned back exports in April.
The slide in log exports, however, was offset by a NZ$202m (29%) jump in milk powder exports.
Kiwi fruit exports also continued to support, with a NZ$116m (37%) rise compared with April 2019.
Compared with April 2019, exports to Japan and the U.S increased, while exports to China, the EU, and Australia slumped.
Goods imports in April 2020 slid by NZ$1.1bn (-22%) to NZ$4.0bn, marking the 2nd largest decline on record.
A sharp slide in petroleum and products of NZ$352m (-58%) contributed to the slump in imports.
The imports of crude oil fell by NZ255m (77%), with petrol and diesel imports falling by NZ$97m (35%).
The Kiwi Dollar moved from $0.61011 to $0.60992 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.29% to $0.6121.
At the time of writing, the Japanese Yen was down by 0.14% to ¥107.86 against the U.S Dollar, while the Aussie Dollar was up by 0.24% to $0.6561.
The Day Ahead:
For the EUR
It’s a relatively quiet day ahead on the economic calendar. Germany remains in focus, with May’s GfK Consumer Climate figures due out later this morning.
Expect some influence from the numbers, which will give some indication of whether a service sector-driven economic recovery is feasible near-term.
Global trade terms remain weak, which will likely shift focus to service sector activity near-term. Consumer confidence and consumption will be pivotal in any economic recovery.
At the time of writing, the EUR was up by 0.11% to $1.0910.
For the Pound
It’s another quiet day ahead on the economic calendar. Following Monday’s holiday, expect Brexit and COVID-19 news updates to be the key drivers on the day.
Will there be a surprise decision to agree to a Transition period extension? The current economic environment would support such a move. It would be hard to imagine voters complaining when considering the impact of the COVID-19 pandemic on the UK economy.
At the time of writing, the Pound was up by 0.14% to $1.2208, with risk sentiment providing support.
Across the Pond
It’s also a relatively busy day ahead on the U.S economic calendar. Following Monday’s public holiday, May’s consumer confidence figures are due out later today.
A marked pickup would be needed in confidence to support a more optimistic economic outlook. Weekly jobless claims figures suggest that, while an easing of lockdown measures is positive, labor market conditions will weigh.
April’s new home sales and March house prices figures also due out should have a muted impact later today.
Away from the calendar, chatter from the Oval Office and any progress with the bill to toughen rules on Chinese firms listing on U.S exchanges will also influence. There’s also any U.S response to China’s plans for the HK security law to also monitor.
It’s a quiet day on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.
Geopolitics and improved market sentiment towards the economic outlook will likely remain the key drivers.
Overnight BoC Governor Poloz spoke of inflation likely to take some time to return to target. Poloz added that the BoC has some flexibility in the time it takes to get inflation back to target. The comments suggested that there would be no monetary policy moves to fuel inflationary pressures.
At the time of writing, the Loonie was up by 0.17% to C$1.3961 against the U.S Dollar.
The US dollar has done truly little against the Japanese yen during the trading session on Monday, as some of the largest countries in the world had the holiday session, leading to a lack of liquidity. With that in mind, I look at the ¥108 level as an area that offers significant resistance. If we were to break above, there then we have to focus on the 200 day EMA which is just above. After that, then the ¥109 level is the next target. In other words, it is very tight all the way up to that level.
USD/JPY Video 26.05.20
To the downside, if we were to break down a little bit the ¥107 level is a significant support level, followed by the 160 and level. There is probably a little bit more easing going lower due to the fact that the last several days have seen the buyers give up the gains for several days in a row. In other words, there is more of a “lean” to the downside. In other words, it is going to be easier to go lower. After all, the Japanese yen is significant as far as safety is concerned, even more so than the US dollar under certain circumstances. That being said, and the fact that both of these are considered to be safety currencies, it is exceedingly difficult to imagine that we are going to go and make a significant move in the short term, as there is just far too much in the way of noise.
It was a particularly quiet day on the economic calendar this morning. There were no material stats out through the Asian session to provide any direction.
A lack of stats left the markets in the hands of chatter from the weekend and the latest COVID-19 news and numbers.
At the end of last week, news had hit the wires of China’s security law heading for Hong Kong, leading to some caution through the Asian markets.
Strong words from both the U.S and China as tensions have built tested market risk appetite early on.
While the rise in tension is certainly a concern, positive updates from COVID-19 vaccine trials provided support to riskier assets early on. The positive news was coupled with a continued downward trend in new coronavirus cases across the EU and the U.S.
Looking at the latest coronavirus numbers,
On Sunday, the number of new coronavirus cases rose by 100,455 to 5,497,427. On Saturday, the number of new cases had risen by 99,013. The daily increase was higher than both Saturday’s rise and 83,321 new cases from the previous Sunday.
France, Germany, Italy, and Spain reported 1,470 new cases on Sunday, which was down from 1,658 new cases on Wednesday. On the previous Sunday, 2,500 new cases had been reported.
From the U.S, the total number of cases rose by 20,190 to 1,686,436 on Sunday. On Saturday, the total number of cases had risen by 21,152. On Sunday 17th May, a total of 19,891 new cases had been reported.
At the time of writing, the Japanese Yen was down by 0.01% to ¥107.65 against the U.S Dollar, with the Aussie Dollar down by 0.08% to $0.6532. The Kiwi Dollar was up by 0.01% to $0.6095.
The Day Ahead:
For the EUR
It’s a relatively busy day ahead on the economic calendar. Germany is back in focus, with 2nd estimate GDP numbers and May’s IFO Business Climate Index figures due out.
Barring a marked downward revision to the GDP numbers, the IFO figures will likely have the greatest influence.
As lockdown measures ease through May, the markets will be looking for a pickup in both business and consumer confidence.
Away from the economic calendar, expect the news wires to also influence. China and the U.S will be in focus as will any chatter from Brussels and EU member states on the COVID-19 recovery fund.
At the time of writing, the EUR was down by 0.02% to $1.0899.
For the Pound
It’s a quiet day ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction, with the UK markets closed.
A lack of stats leaves the Pound in the hands of Brexit and COVID-19 updates, both of which remain Pound negative.
While an easing in lockdown measures is positive, the continued spread of the virus across the UK has led to a delay of a more widespread opening of the economy.
With the UK’s neighbors taking more aggressive steps to ease lockdown measures, the UK economic recovery will likely trail behind those of the EU and the U.S.
At the time of writing, the Pound was up by 0.10% to $1.2185.
Across the Pond
It’s also a quiet day ahead on the U.S economic calendar, with no material stats due out to provide the Dollar with direction. The U.S markets are closed, which will leave volumes on the lighter side.
A lack of stats will leave the Dollar in the hands of any chatter from Beijing and the Oval Office and COVID-19 news…
The Dollar/Yen rose last week with increased demand for risky assets driving the price action most of the week. Gains were capped late in the week as investors sought protection in the Japanese Yen due to simmering tensions between the United States and China.
With the spread between U.S. 10-year Treasury Notes and Japanese Government Bonds extremely tight, the price action in the Forex pair is likely to be primarily influenced by risk sentiment.
Last week, the USD/JPY settled at 107.615, up 0.445 or +0.42%.
Positive for the U.S. Dollar will be demand for risky assets. Risk sentiment is likely to rise as more countries report optimistic coronavirus results and countries continue to loosen lockdowns and restrictions. Furthermore, any news regarding successful vaccine results are also expected to underpin the Dollar/Yen.
Stock market weakness and a second-wave of coronavirus outbreaks could weaken the Forex pair. However, the primary concern for investors is likely to be an escalation of tensions between the United States and China.
Bank of Japan Launches New Loan Scheme
The Bank of Japan decided on Friday to launch a new lending facility that aims to channel more funds to small and midsize businesses suffering from the economic blow of the coronavirus pandemic.
In an emergency policy meeting, the central bank also extended the deadline for a series of measures it has deployed to combat the virus fallout, including accelerated corporate debt buying, by six months to March 2021.
As widely expected, the BOJ kept monetary settings unchanged including its short-term interest rate target of -0.1% and a pledge to guide the 10-year government bond yield around 0%.
In an outline of the scheme released in April, the BOJ had said the new facility would offer zero-interest loans to financial institutions that boost lending to small firms by tapping government guarantee programs. It also offered to pay 0.1% interest to lenders that boost such loans.
Risk sentiment will drive the USD/JPY this week as ties between the U.S. and China come under further strain, potentially threatening the “Phase One” trade deal signed earlier this year.
Tensions between the world’s two largest economies have flared on multiple fronts in recent days. China is poised to impose a new national security law in Hong Kong following months of anti-government protests, raising further questions about Beijing’s control over the city and likely evoking the ire of the U.S. and other Western powers which supported pro-democracy protesters.
Already engaged in a blame game over the coronavirus pandemic, discord between Washington and Beijing has spilled over into the financial markets last week after the U.S. Senate passed legislation last Wednesday that could restrict Chinese companies from listing on American exchanges unless they abide by U.S. regulatory and audit standards.
A Chinese government official said last Thursday that Beijing will not flinch in the face of any escalation of tensions with the U.S., but stressed that economic recovery and cooperation should be the priority, according to Reuters.
It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 22nd May. In the week prior, 57 stats had also been in focus.
For the Dollar:
It’s a relatively busy week ahead on the economic data front.
A quiet 1st half of the week leaves May consumer confidence figures in focus on Tuesday. The markets will be looking for a pickup in confidence as the government eases lockdown measures. A continued rise in jobless claims, however, may lead to softer than anticipated numbers.
In the 2nd half of the week, April durable goods orders and weekly jobless claims will be in focus on Thursday.
While the markets may be able to stomach a slide in durable goods order, the weekly jobless claims will need to slide back considerably.
At the end of the week, April inflation figures, personal spending, and May’s Chicago PMI will also be in focus.
Barring any downward revision, we would expect 2nd estimate GDP numbers to have a muted impact on Thursday.
Other stats in the week include the April housing sector and trade data and finalized Michigan consumer sentiment figures. Expect the markets to also brush these numbers aside in the week.
Outside of the numbers, we will expect chatter from Capitol Hill and COVID-19 numbers to remain key drivers. On the monetary policy front, FOMC members will also draw more attention. At the end of the week, FED Chair Powell delivers a speech to wrap things up.
The Dollar Spot Index ended the week down by 0.54% to 99.863.
There are no material stats due out of the UK to provide the Pound with direction.
A lack of stats will leave the Pound in the hands of Brexit and COVID-19 news updates.
We’ve seen the Pound under tremendous pressure as a result of the lack of progress on Brexit.
Boris Johnson has stated that, in spite of the lockdown, there would be no extension to the transition period. Based on progress to date, the chances of a hard Brexit have increased as a result. A change in stance by the British PM and the Pound would find support, else expect a reversal of last week’s gains.
Brexit news from the weekend was Pound negative…
The GBP/USD ended the week up by 0.47% to $1.2173.
For the Loonie, however, the markets will need to wait until Friday for economic data.
Key stats include 1st quarter GDP numbers and April’s RMPI.
We’ve seen GDP numbers from elsewhere. Will Canada see a similar contraction? Economists think so. It may be for that very reason that BoC Governor Poloz is scheduled to speak on Tuesday and Wednesday…
Away from the calendar, the upward trend in crude oil prices and a continued easing in lockdown measures remain Loonie positives. It remains to be seen whether crude can continue on the road to recovery, however.
Downside risks do remain. These include any signs of a 2nd wave pandemic and the U.S and China moving beyond words…
The Loonie ended the week up by 0.80% to C$1.3996 against the U.S Dollar.
Out of Asia
For the Aussie Dollar:
It’s another quiet week ahead for the Aussie Dollar.
Key stats include 1st quarter construction work done and private new CAPEX on Wednesday and Thursday.
On Friday, April private sector credit figures will also be in focus.
With the economy in meltdown going into April, however, we would expect the numbers to have a muted impact.
The RBA has talked of material contraction in the 2nd quarter, so don’t expect 1st quarter and April stats to do too much damage.
Expect COVID-19 updates and any U.S or China move to influence, however.
The Aussie Dollar ended the week up by 1.93% to $0.6537.
For the Kiwi Dollar:
It’s another relatively quiet week ahead on the economic data front. Key stats include April trade figures on Tuesday and May business confidence figures on Thursday.
The RBNZ downplayed the market optimism in its last policy statement. That should limit any material upside for the Kiwi Dollar from the stats.
While trade data has stood up well considering the economic lockdown, will business confidence see some improvement?
Concerns over global trade terms and tourism will certainly be two major issues that businesses will continue to face.
Outside of the numbers, the RBNZ Financial Stability Report Wednesday will draw attention. The Kiwi will also be sensitive to any chatter or action from Beijing and Capitol Hill.
The Kiwi Dollar ended the week up by 2.68% to $0.6094.
For the Japanese Yen:
It’s a relatively busy week ahead on the economic data front.
The markets will need to wait until Friday for the numbers, however.
Key stats include May inflation figures and April industrial production and retail sales numbers.
With the Japanese government only just lifting the COVID-19 state of emergency, April figures are likely to be dire… There shouldn’t be too many surprises, however.
May inflation figures will also have little influence on the Yen. A pickup in crude oil prices will provide support but unlikely to be material, with consumption having tanked…
Outside of the numbers, risk sentiment will continue to influence, though it may be too soon for the Dollar to give up the safe-haven mantle…
The Japanese Yen ended the week down by 0.54% to ¥107.64 against the U.S Dollar.
Out of China
It’s another quiet week ahead on the economic data front. Economic data is limited to April’s industrial profits. No one is expecting any major rebound, which leaves the markets exposed to any accelerated decline…
Ultimately, the market focus will remain on COVID-19 news and moves by Beijing and Washington amidst the latest spat.
Beijing’s plans to impose a security law on HK will also need close monitoring… U.S President Trump has promised a strong U.S response to any such move.
The Chinese Yuan ended the week down by 0.39% to CNY7.1294 against the U.S Dollar.
Brexit and lockdown measures remain the key areas of focus in the week ahead.
While the Pound found much-needed support last week, a lack of progress on Brexit will be an issue.
News hit the wires over the weekend of the EU beginning to prepare for a hard Brexit. This may price out the element of hope that has continued to support the Pound.
COVID-19 news will also be of influence, as the UK government struggles to contain the spread of the virus.
Rising tensions between the U.S and China will likely be a key driver in the week ahead.
If Trump signs the Bill to target Chinese companies, expect China to target U.S companies with heavy reliance on China…
The markets will also be watching to see how the U.S responds should China formally introduce the security law for HK.
Easing measures will continue in the week.
We’ve yet to see a marked increase in the number of COVID-19 numbers across the EU or the U.S, though concerns will linger over what lies ahead. Some comfort will be taken from the fact that China reported zero new cases on Saturday.
From the market’s perspective, there are 3 key considerations that remain:
Progress is made with COVID-19 treatment drugs and vaccines.
The downward trend in new coronavirus cases continues.
Governments continue to progress with the easing of lockdown measures.
All of this will need to translate into a marked decline in jobless claims and a pickup in consumer confidence and consumption… U.S Jobless claims figures released last week were disappointing, raising some doubt over how quickly the job markets will recover.