Thursday June 11th, 2020

The US Federal Reserve’s projected that the US economy would shrink 6.5% and unemployment was set to reach 9.3% at the end of 2020 sending a sobering message to the markets. Equity and oil markets weakened in response to the Fed’s comments, with MSCI world stocks index seeing its biggest fall in 5-weeks. The US$ index vs a basket of major currencies remains relatively flat, with the prospect of US rates remaining near zero for the longer-term slowing the rush to safe haven US$. Petro currencies did come under selling pressure as oil prices slipped with RUB, NOK, MXN all dropping over ¾% vs US$. Intraday the focus shifts to US Initial Jobless claims (est 1.5mio) and US PPI for May. 

Oil prices dropped 3%, impacted by a record build-up in US inventories, rising Covid-19 cases in the US and the Fed’s projections of a shrinking US economy. C$ faired relatively well compared to its Petro currency counterparts falling less than ½% vs US$. C$ initially weakened to 1.35 level before rebounding in early trading this morning. 1.3460 provides a minor support, with 1.3370 remaining key below and resistance sits at 1.3585. 

Euro is remaining relatively resilient vs US$, holding close to it recent highs, with the potential to strengthen further. The EU has seen a significant reduction in covid-19 cases and its economies are starting to come back online as lockdown restrictions continue to ease. The ECB and EU leaders are rolling out aggressive stimulus programs to help the continent to get the continent back on its feet. Support level rises to 1.1335 with the key resistance remaining at 1.1490 (March 9 highs).

GBP weakened from a combination of the US Fed comments, Brexit concerns and the UK PM facing pressure over his coronavirus policy. The UK PM was criticized over his slow response to the pandemic from a former Downing St epidemiologist saying “Had we introduced lockdown a week earlier we’d have reduced the final death toll by at least half”. The high rate of covid cases within the UK has also slowed its loosing of lockdown restrictions having further impact on the economy.  The Chief EU negotiator continues his criticism of the UK negotiations and the likelihood of a breakthrough in negotiations appears bleak.  Support 1.2650 if breached opens a retest of 1.2465 while resistance remains at 1.2850.