Thursday May 28th, 2020

Sino/US tensions over technology, human rights violations and the HK security law continues to dominate headlines. US Secretary of State certified to congress that Hong Kong is not autonomous anymore and is contemplating removing HK’s preferential status when it comes to tariffs. The markets have somewhat shrugged off the tensions keeping to “risk-on” stance keeping equity markets positive, oil prices and US$ index stable. Chinese CNY weaken to an almost 2-year low awaiting what actions the US will enact against China. Intraday a flurry of US data releases including Jobless claims, nondefense capital goods orders, GDP as well as Fed Williams speaking could all impact direction today.

Oil prices open slightly lower after US industry data highlighted a larger than expected build up in oil inventories. Positive news for Oil, Russia and Saudi Arabia agree on “close coordinate” on oil output restrictions ahead of the OPEC+ meeting in two weeks. C$ is sitting around a 10-week high as risk appetite rises, managing to ignore the recent slip in oil prices and rising Sino/US tensions over Hong Kong.  1.3730 remains the support, a break could see C$ extend to 1.3460 and resistance remains 1.3850. Our bias remains to buy this US$ dip under the rising US/Sino tension conditions.

Eur edges stronger to its recent 2-month highs after the EU Commission proposed recovery plan that exceeded the Franco/German proposal to Euro 1 trillion. The plan provides grants worth Euro 500bln, boosting support to the hardest hit economies such as Italy and Spain. Euro should be stronger on the proposal, but Sino/US tensions and 2nd wave fears is stalling the Euro’s ability to rally. Intraday US/Sino tensions and US data releases will dictate intraday direction. 1.1050 remains key resistance level with support rising to 1.0940.

GBP remains under pressure vs US$ as the UK refuses to extend the Brexit transition period beyond the end of 2020. Adding more pressure to GBP is the BoE’s comments saying its safer for BoE to ease too much than too little, increasing speculation of negative UK interest rates to come. Support remains at 1.2250, a break opens the potential for a retest of 1.2165, with resistance lowering to 1.2375.