Friday June 19th, 2020

Geopolitical risk and second wave fears are offsetting the positive signs of economic recovery as investors adopt a risk-off sentiment.  US$ ends the week slightly stronger vs a basket of major currencies as safe haven buying emerged. Sino/US tensions persist as the US President renewed his threat to cut ties with China as the growing list of issues include human rights abuses, Hong Kong, to rebalancing the US/Sino trade deficit are ongoing. On a positive note, China announced it would accelerate its purchases of US agricultural products. Coronavirus second wave fears continue as worldwide cases surpass 8.6mio, with 37k new cases reported today and the global death toll over 450k. Markets will focus on to the European council meeting, the Fed Chair’s Speech, ongoing developments with covid19 and Sino/US relations.

Oil prices rallied 3% overnight after OPEC+ producers promised to meet output cuts and optimism for demand growth increases. C$ remains within its weekly trading range but looks vulnerable to further weakness despite the stronger oil prices. Canadian retails sales today for April, which are expected to be weak at -15% and not reflective of the current situation. Support remains at 1.3500 with resistance at 1.3635. 

Euro edged lower, dropping to a 2-week low vs US$ as investors paired back risk and switched to US$ safe haven buying. EU economic summit will attempt to hash out their differences over the covid economic recovery plan. Concerns remain that the Euro 750bln recovery plan with hopes of agreeing the stimulus by the end of July, but expectations are low the leaders will reach consensus. The prospect of more EU bargaining will likely put additional short-term pressure on the Euro. Initial support broke at 1.1225, we could see further weakness towards 1.1050, with resistance lowering to 1.1285.

GBP rose initially after retail sales jumped 12% in May vs -18% in April, as well consumer confidence was at its strongest levels since the lockdown began. BoE Governor said the UK economy was shrinking, but at a slower pace than was expected (BoE kept rates on hold). They key risk for GBP remains Brexit and a “no-deal” as talks remain deadlocked and continues to be the anchor on the Pound strengthening. GBP remains under pressure, a break of 1.2320 opens the move to May lows of 1.2070 with Resistance at 1.2450.