The US$ rebounds to near 3-week highs following the Fed Chair’s somber comments on the economy, the longer-term implications from covid-19 and dismissing a move to negative interest rates. Adding to US$ safe haven buying is the increasing Sino/US tensions, the US President is reportedly “looking at” Chinese companies that trade on US exchanges that are not following US accounting rules. Equity markets are down, oil prices rebound and GBP, EUR, CNY, AUD, ZAR are weaker. Focus shifts to US jobless claims again with expectations of 2.5mio new jobless to May8th.
Oil prices rebound on a drop in US crude stockpiles, IEA outlook for oil though improving, is still expecting to see a record fall in oil remain in 2020. C$ strengthens from its lows, but stronger oil prices are being offset by a rallying US$. Canada is slowly loosening its lockdown restrictions but extends its non-essential travel ban to Jun21st. No key Canadian data today so focus will remain on Oil prices and US jobless claims for directions. Increasing Sino/US tensions could put additional pressure on C$, with the potential of testing 1.4165. Intraday support sits 1.4035 – resistance 1.4165.
Euro weakens towards last week’s low of 1.0765 amid a strengthening US$ after the Fed Chair’s speech and the increasing China/US tensions. Euro unlike the UK is finding support from investors on the EU clearer road map to loosening lockdown restrictions. The ongoing ECB /German constitutional court continues to weigh on Euro. No key data out of Europe today, so focus remains on US jobless claims for direction. A break of 1.0765 opens a move to March lows of 1.0635, resistance remains 1.0880.
GBP fell to a fresh 5-week low, down over 3% in May on a combination of weak UK economic data and a strengthening US$. The UK economy contracted 5.8% in March due to the coronavirus related lockdowns. Investor confidence is waning due to the perceived UK’s government lack of a clear roadmap to exit lockdown restrictions. The lack of progress between the EU/UK negotiators has increased concern of a “No-Deal” Brexit. The BoE governor commented last week that the UK economy could contract 25% in the April-June period, but he is ruling out the prospect negative interest rates. 1.2165 remains a key support, if breached we could see GBP retest the lows seen in March (1.1405), resistance 1.2340.