Friday August 7th, 2020

Currency markets consolidate gains ahead of Nonfarm payroll and rising Sino/US tensions. A “risk off” sentiment is growing after the US proposes to ban transactions with China’s Wechat & TikTok effective in 45 days. China responded quickly to the ban announcement saying the US would “bear the consequences” of its actions. The rising Sino/US tensions caused equity markets and trade related currencies to weaken with AUD, NZD, ZAR & CAD on average down ½% vs US$. US$ index rebounded vs a basket of major currencies, vs CNY the US$ is up just slightly at 0.1%. Nonfarm payroll data release this morning has been widely anticipated and is expected to be a weak number. Updates on Sino/US tensions, US relief stimulus and jobs date will dictate currency markets direction today.

Oil prices are moderately lower on a firmer US$ and demand concerns stemming from rising coronavirus cases. C$ weakened from its highs as oil prices slipped and the prospect of growing tensions between the US/Canada over fresh tariffs. The US President has re-imposed a tariff of 10% on some aluminum products imported from Canada, which prompted Canada to pledge a dollar for dollar retaliation. Intraday focus will follow US nonfarm payroll, Canadian unemployment and updates on the US aluminum tariffs. Support remains at 1.3290 with minor resistance at 1.3365 if breached then 1.3410.

Euro retreated despite positive data releases as the risk-off mood grew ahead of the US jobs data and the increased Sino/US tensions. Europe posted across the board better than expected trade, industrial production and unemployment data results this morning. The data provides positive signs that Europe is emerging from the pandemic shutdown but concerns in the US prompted some US$ safe haven buying. US data will dictate intraday direction, but Euro is expected to remain about intraday support levels. Support at 1.1775 with resistance 1.1915 and key resistance at 1.1996 (May2018).

GBP weakened alongside its peer’s vs US$, adding to GBP were doubts over the UK furlough scheme. The future of furlough stimulus looks uncertain after the UK finance minister commented that “Extending UK furlough would trap people in false hope”. The National Institute of Economic & Social Research last week said that closing the scheme too early would be a “Mistake” and would cause surging unemployment. US geopolitical concerns and Jobs data will provide short term market direction but ending the UK furlough scheme would likely put significant pressure on the GBP long-term. Support remains at 1.3050 with resistance at 1.3199 (Mar9th).