Friday September 25th, 2020

Global risk off sentiment continues with just 39 days until a US general election, coronavirus surging globally, and the Fed calling for more stimulus investors remain cautious. After the Fed comments this week that more fiscal stimulus is required, the US Congress appear to be hearing the message, resuming stalled talks with Dems proposing a US$ 2.2 trillion coronavirus stimulus package. Global coronavirus cases surpassed 32 million prompting many countries to implement fresh covid restrictions which will impact domestic economies and reduce global demand for commodities. Currency markets remain under pressure as investors continue to hold US$, with the US$ index up 2.7% mtd. Today, AUD & Asian currencies are down marginally 0.1% on average, while NZD is flat vs US$. The more volatile trading currencies MXN down 0.7%, NOK down 0.9% and ZAR down 1% vs US$. Focus remains on US Congress for Stimulus updates, as well as US Durable Goods Orders and Nondefense Capital Goods Orders ex Aircraft for intraday direction.

Oil prices are stable, but are ending the week down slightly due to the mounting worries for fuel demand amid a widespread resurgence of coronavirus and anticipation of Libyan oil exports. C$ manages to hold below 1.3420 as oil prices remain steady and Ottawa’s promise of stimulus support. The prospect of weaker oil and the current markets risk aversion mood our bias remains to buy US$ on these dips. Support at 1.3300 with resistance at 1.3420, if breached look for 1.3537 (Jul21st)

Euro edges below 1.1650, holding near two-month lows amid second wave fears and a return to US$ buying. EU health officials warn of a “twindemic”, the surge of covid-19 risks combining with flu infections. Health officials warned EU governments not to let their guard down saying “its abundantly clear that this crisis is not behind us. We are at a decisive moment”. The economic impact related to increasing restrictions will likely have a significant impact on the weaker EU countries. Support drops to 1.1580 with minor resistance at 1.1670, followed by 1.1785.

GBP had a volatile morning, initially rallying to 1.28 and then dropping to 1.27 during today’s London trading session. Initial GBP buying was boosted by the UK “pay as you grow” scheme and Brexit optimism. Adding some pressure to GBP, the UK public sector net borrowing increased from GBP14.7bln to GBP35.195bln(aug) slightly more than expected. The elephant in the room remains the fear of negative interest rates, BoE Governor commented he is seeking answers to the suitability of sub-zero rates. With the prevailing risk off sentiment, the fear of sub-zero rates caused investors exit the risker GBP positions. Support remains at 1.2675, if breached expect 1.2520 (Jul20), with resistance at 1.2800.