Monday August 24th, 2020

The US$ weakens, equity & oil markets strengthen on the FDA’s authorization of a plasma treatment for coronavirus. The FDA announced its “emergency use authorization” of the treatment on Sunday as US virus cases approach 6mio and a death toll at +180k. Investors remain cautious that this could be another false “risk-on” mood, wondering if it’s a real breakthrough or politically timed ahead of the Rep national convention. NZD rebounds after initially weakening as the PM extends coronavirus lockdown measures until the end of the week and despite the prospect of further central bank easing. Early trading saw petro & trade currencies rally with ZAR, NOK & RUB being the strongest performers vs US$. This week ongoing China/US tensions, US Rep National Convention and FED Chair Powell to speak at the Kansas City Fed’s virtual Jackson Hole economic summit will be in focus. Expect virus updates and Chicago Fed National Activity Index to provide intraday direction.

Oil prices tic higher as storms in the Gulf of Mexico shuts down 58% of its oil output. C$ strengthened on vaccine hopes and stronger oil prices, but its strength has been subdued compared to its peers. With no key Canadian data out until Fridays GDP, C$ will be driven by US$ direction. Technically a break of 1.3120 opens the potential to see 1.2952 (Jan7th). Key support holds 1.3120 (Jan23) with minor with resistance at 1.3188 with followed by 1.3265.

Euro strengthens amid a weaker US$ and an improving risk-on mood as new vaccine hopes are reported in the US. A worrying uptrend in new virus cases across Europe, with both France and Spain reporting significant spikes in new cases. Analysts are turning bearish Euro with predictions of a test of 1.1715 in September and 1.1665 by year end vs US$. No key EU data today, but tomorrows German GDP and IFO will provide some direction to the single currency. Support lowers to 1.1755 with resistance at 1.1850.

GBP strengthens vs US$ but weakens vs Euro as Brexit talks fail to deliver any progress. Focus will now shift to the BoE for interest rate direction, many expect the Bank will continue its wait-and-see approach after last week’s positive economic data. The rising number of coronavirus cases in the UK could see Birmingham possibly become the next city to face fresh lockdowns measures. Investors are disappointed at the lack of progress in the Brexit talks and concerned about the possible spike in unemployment if the job furlough scheme ends. Analysts are predicting GBP to weaken towards 1.2950 in September. Support holds at 1.3080 with resistance at 1.3190.