Friday October 16th, 2020

The US$ is poised for its best weekly gain since September as US stimulus hopes fade and new coronavirus cases continue to surge. The US stimulus talks remain stalled as the Treasury Secretary continues to press for compromise and blames election positioning for the stimulus deadlock. Europe and UK reports record virus cases and US mid-west is also seeing a spike in new cases. US$ safe haven buying is re-emerging as hopes for a pandemic recovery stall. Overnight US$ consolidated allowing CNY to test 18-month highs up 0.4% while Asian currencies were up just 0.1% on average vs US$. Trading currencies AUD down 0.15%, NZD up 0.1%, JPY & MXN up 0.15%, ZAR up 0.6% and NOK down 0.2% vs US$. After a disappointing US initial jobless claims (Oct9th) which jumped more than expected, focus shifts to US retail sales and the Michigan Consumer Sentiment index.

Oil prices holds steady around $40 bp as US stockpiles fell amid hurricane delta but oil remains vulnerable to further weakness as demand slows. China will reduce its oil imports by -10% in Q4 vs Q3 as inventories are near maximum. C$ breached 1.3140 Thursday and fell to a 1-week low as oil prices slipped and US$ demand resurfaced. The US$ has eased allowing C$ to hold below the key 1.3220, we anticipate further oil weakness and our bias remains buy US$ dips towards 1.3140. Support 1.3140, with resistance at 1.3220, if breached look for possible extension to 1.3340 (oct 7th). 

Euro consolidates around 1.17 vs US$ as hopes for a US stimulus fade ahead of the election and coronavirus cases continue to surge across the eurozone. Germany announced it is struggling with covid-tracing, France initiated a nighttime curfew in Paris, with Belgium, Spain and The Netherlands seeing continuing spikes in caseloads. EU summit wraps up today with the primary focus being on UK PM’s decision to continue Brexit negotiations or not. In the current covid-environment expect Euro to remain under pressure. Support at 1.1670, if breached expect 1.1610 (Sep25th), with resistance at 1.1800.

BP is under pressure as UK PM Brexit decision announced.  Brexit hits a critical turning point today as markets away UK PM’s response to the EU’s demand for compromise. The UK PM has passed his own Brexit deadline, if negotiations cease expect a lot of GBP volatility to follow. British covid-19 cases continue to rise and the PM’s tiered virus strategy “turns into chaos”. Medical experts and the opposition leader are calling for increased lockdowns. Brexit direction will be key for GBP today. Support 1.2830 with resistance holding at 1.3050.