Tuesday September 8th, 2020

US$ stronger, commodity and equity markets weaker as risk-off mood returns to the markets. The US President’s comments on Monday which raised the idea of decoupling the US & Chinese economies. The NY Times also reported that the US is also considering banning some or all products made with cotton from China’s Xinjiang province. Anticipation of an escalation in Sino/US tensions ahead of the US elections saw investors to return to the safe-haven US$. Adding to the risk-off sentiment has been the spike in covid-19 cases, specifically in India and fears of fresh spikes in the US after the US Labor Day holiday. Global cases are approaching 27.6mio, with related deaths at almost 900k, India has the 2nd largest number of cases at 4.3mio, with the US is approaching 6.5mio cases and almost 200k deaths. Indian rupee fell ½% vs US$, while Asian currencies & CNY fell on average of 0.2% vs US$. Trade related currencies remain under pressure with AUD & NZD down ¼% on average, MXN-0.6%, NOK down -0.9% and ZAR down 1%. No key data out of the US today, so focus remains on Covid update and any escalation of Sino/US tensions.

Oil prices fall for a 5th session of declines, under pressure from rising coronavirus cases and concerns of further falls in demand for oil. Yesterday Saudi Arabia cut the October official selling price for its Arab light oil, a sign that demand may be stalling. C$ weakened alongside falling oil prices and ahead of the BoC interest rate decision tomorrow. Concern over further oil price weakness and a shift in risk sentiment, we could see a re-test of 1.3185 ahead of the BoC rate announcement tomorrow. Initial support at 1.3120 (minor) then 1.3050, with resistance 1.3185, if breached 1.3245 next.

Euro broke through the key 1.1800 level vs US ahead of the ECB rate decision on Thursday, Brexit concerns and rising US/Sino tensions. Eur GDP came in slightly better than expected, but Employment change was marginally worse than expected. The probability of a no-deal Brexit is growing as the UK builds out their alternative Brexit plans. The ECB is expected to keep rates on hold, but their dovish tone will likely continue as concern of a 2nd wave of virus infections remains. Rising Sino/US tensions is putting additional pressure on the single currency with the risk-off mood returning. Initial support holds at 1.1780, if breached look for 1.1675 next, while resistance lowers to 1.1850.

GBP sell off continues with the pound hitting fresh 2-week lows as the fear of a “no-deal” Brexit increases. EU ministers are casting doubts over the stalled Brexit negotiations and warning a no-deal Brexit could be disastrous for the UK. The EU/UK meet for the penultimate round of Brexit talks, but hopes remain low that two sides will be able to come to a decision. The UK PM said that Britain will accept a no-deal scenario mon on if a deal is not reached by mid-October. Support 1.2980 is key if breached 1.2840 next with resistance lowering 1.3130.