Monday September 21st, 2020

Risk-off sentiment returns as rising COVID-19 cases unnerve investors causing equity and currency markets to weaken. Global covid cases surpassed 30mio over the weekend increasing fears of new EU & UK lockdowns restrictions. Global equity markets fell on economic recovery fears if new lockdown restrictions are rolled out. US$ index strengthened as fresh US$ safe haven buying emerged. Asian currencies were mixed with tourism related THB down ½%, CNY down 0.2% while safe-haven JPY rallied almost ½% vs US$. Trade related currencies were impacted with AUD down ½%, NZD down 0.8%, NOK down 1.6%, MXN down 1.7% and ZAR was down 2 ¼% vs US$. The focus today will be the EBC president’s speech, the Fed chairman’s appearance before congressional committees, Covid updates and Chicago Fed National Activity Index. 

Oil prices fall 2% on expectations that Libyan oil facilities will restart operations as well as ongoing demand concerns. Oil would likely to have weakened further if not for the fresh storms hitting the US Gulf coast. C$ weakened on falling oil prices and a return to US$ safe haven buying. In comparison to its peers C$ weakness has been relatively modest. The prospect of further oil price weakness and rising covid concerns, our bias remains for a weaker C$. Support at 1.3185, with resistance 1.3270 next, if breached we could see an extension towards 1.3350 next.

Euro weakens alongside US$ safe haven buying as the risk-off sentiment intensifies. Fresh covid restrictions lead by Spain and other EU countries prompted a sell off of European equities and a shift to safe-haven US$ buying. Equity markets remain under pressure as the EU considers further lockdown restrictions and the impact on the domestic economies. The ECB president is speaking today, and her comments may provide some short-term support to the single currency. Support at 1.1740, with resistance 1.1930.

GBP falls amid fears that the UK is facing a 2nd wave of covid and a strengthening US$. The UK has enacted several new covid related restrictions and the UK PM indicated that he is pondering a 2nd lockdown. The UK chief medical Officer warned today that the UK is at a “critical point”. The London Mayor is expected to recommend tighter rules for the capital today. Brexit fears have eased for the time being after Thursday’s comments by the EU commission President that a Brexit deal is still possible. Support 1.2850, if breached 1.2765 with resistance at 1.2970.