Friday October 9th, 2020

Stimulus optimism continues to drive currency and equity markets. In what appears to be a reversal, the White House have opened the door to fresh negotiations with the Dems. The House speaker and The Treasury Secretary hove reignited stimulus discussions, but Reps appear reluctant believing that they have already done enough. Markets stimulus optimism is weighing on US$, with the US$ index down 0.56% MTD and down 3.15% YTD. China returns from the golden week holidays which saw CNY jumping 1.3% vs US$, its strongest day since 2005. AUD & Asian currencies rallied by 0.3% on average vs US$. Trading currencies MXN up 0.3%, NOK up 0.5%, NZD & ZAR up 0.6% vs US$. No key us data releases today, US stimulus updates remain the markets key focus and will dictate US$ direction.

Oil prices fall slightly but remains up for the week due to output disruptions from the Norwegian oil strike and Hurricane delta in Gulf of Mexico. Norwegian oil company’s and labor unions will sit down with mediators today in an attempt to end the current strike. OPEC on Thursday said that world oil demand will plateau in the late 2030’s. C$ extends its gains from a weaker US$ and stronger oil prices, despite a weaker domestic economy. Bias to buy US$ at current levels, as oil output cuts could end reversing the current oil rally. Intraday focus will be on Canadian unemployment number where expectations that the unemployment rate will improve from 10.2% to 9.7%. Support 1.3170 is being tested, look for 1.3330 (Sep18) next with resistance 1.3270.

Euro extends gains towards 1.1800 on a weaker US$ as stimulus optimism helps drive increased “risk-on” sentiment. Tempering the increased risk sentiment is the surge of coronavirus cases across Europe. Several EU countries recorded their highest daily cases since the pandemic began. As a region Europe reporting more cases than India, Brazil or the USA. With the likelihood of greater lockdown restrictions due to the rising covid cases, our bias is to sell Euro on rallies. Support/pivot at 1.1670 with resistance holding at 1.1800, if breached look for 1.1865 next.

GBP continues to hold firm on a weaker US$, despite Brexit and weak UK data results. UK GDP dropped to 2.1% vs expectations of 4.6%, highlighting weak national output growth. The Brexit saga continues, with UK and EU remaining at odds over state aid and fisheries. A no-deal Brexit is somewhat expected, but it is probably not fully priced into GBP. Lastly, rising coronavirus cases will continue to put a strain on the country as additional restrictions are expected to be announced by the government. Bias remains to sell GBP on rallies. Support 1.2825 with resistance rising to 1.3000.