Thursday July 23rd, 2020

Investors ignore Sino/US tensions and the accelerating covid-19 cases in the US, but instead focus on the EU and US stimulus packages. China is expected to retaliate against the Houston consulate closing, which is the latest in a slew of escalating clashes between the US and China. US coronavirus cases in just the last 16 days have increased by 1 mio, with 19 states reporting new record highs of hospitalizations. Investors instead of turning to safe haven US$ have appeared to have adopted a “risk-on” approach which has caused the US$ index to hit an almost 2-year low (Sep2018). Currency markets are mixed with Asian currencies, Zar, Aud, Nok, Rub are generally weaker with Euro & GBP remaining firm. With the mounting global concerns, we would expect to see a bounce in US$ in the coming days. US Jobless claims, Covid and China updates will dictate intraday direction.

Oil strengthened slightly overnight supported by EU stimulus, but its gains were capped due to increased oil inventories and the persistent surge in new coronavirus cases. C$ strengthened to a 6-week high alongside its trading peers boosted by firmer oil prices, a strong Canadian CPI number and a weakening US$. C$ breached the key support 1.3395 and next support is 1.3310 (June 10th) with minor resistance 1.3395, then 1.3485.

Euro continued its advance, shrugging off coronavirus concerns and rising Sino/US tensions. Euro continues to strengthen on EU recover fund optimism and improving consumer confidence. Consensus remains positive for a stronger Euro, but its current rally appears to be overbought and we may see a short-term sell off before a longer-term rally ensues. Intraday US initial jobs and China’s possible response to the closing of the Houston consulate will be monitored closely. Support at 1.1490 with resistance 1.1650 (Sep2018), if breached we could see 1.1755 next.

GBP remains resilient, boosted by the EU stimulus package and appearing unscathed by the ongoing Brexit impasse and Sino US & UK tensions. The initial fall out of the Sino/UK relationships has been China discontinuing the showing of UK Premier league games in China. US & UK trade negotiations appear to have also run into difficulties and no agreement is expected until 2021. Brexit chief negotiator is expected to provide an update on the talks progress (or lack of it) today, despite reported concessions from the EU. It is difficult to remain bullish GBP in the light a lot of oncoming headwinds. Support initially sits at 1.2670, a break will likely see 1.2595 and resistance at 1.2815.