Thursday May 21st, 2020

Sino/US tensions continue to rise as the world’s two largest economies tussle over the perceived transparency and communication of the Covid-19 outbreak in China. US-China tensions are expected increase as we approach the US elections in November. China’s NPC to propose the National Security law to be enacted in Hong Kong, enacting the security law will likely add further pressure to the Sino/US tensions. US$ index strengthened slightly on Sino/US tensions, as well as the weak economic indicators out of Europe. Chinese CNY, AUD, NZD have started to soften as “risk-off” sentiment returns. Global virus cases reach a grim milestone of +5mio and fatalities surpass 330k, with Russia and Brazil now having the 2nd & 3rd largest cases respectively. Intraday the focus returns to US Jobless claims which are expected to show 2.4mio new jobless claims, taking continuing jobless claims close to 25mio since the start of coronavirus outbreak. 

Oil prices continue to strengthen with Brent crude testing $36.40 pb up almost 2% today. Oil prices are at their highest levels since March, supported by ongoing output cuts and falling US crude inventories. C$ remains firm from the stronger oil prices but failed to breach the key 1.3880. Growing Sino/US tensions and a strengthening US$ could see the C$ rally to stall. No key Canadian data today, so the focus will remain on oil prices and US jobless claims. Support 1.3880 and Resistance at 1.3975.

Euro remains within a relatively tight trading range amid disappointing Euro PMI data and rising Sino/US tensions. Discord over the Franco/German plan from Austria, Demark, Sweden and the Netherlands continues to put pressure on Euro which has failed to extend its current rally. Rising Sino/US tensions remain the key negative for Euro as a return to “risk-off” sentiment will likely see Euro weaken. Intraday US jobless claims will dictate short-term direction. Support 1.0880 with resistance at 1.1050.

GBP is holding above 1.2165 key support level, supported by better than expected UK PMI data but remains vulnerable to further weakness. The BoE Governor commented that he is open to the concept of negative rates and markets are building in the chance of negative rates by year end. Brexit talks remain fragile as both sides continue to make negative comments about the negotiation progress. The prospects of a “no-deal” Brexit remains probable after UK chief negotiator commented that that Brussels was offering a “low-quality deal”. Rising Sino/US tensions could see a return to safe-haven buying which will put additional pressure on GBP. Support remains 1.2165 with resistance sitting at 1.2350.