Thursday October 15th, 2020

Equity and currency markets weaken as risk-off sentiment grows amid rising coronavirus cases and stalled US fiscal stimulus talks. The US Treasury Secretary said that a coronavirus aid deal is unlikely before the US election. Global coronavirus cases continue to surge, and Europe announces stricter lockdown measures across the continent. Sino/US tensions continues as the White House considers adding China’s Ant Group to the trade blacklist. The 2-day EU summit begins today, with Brexit talks remaining deadlocked. CNY eases down 0.2% on soft inflation data and rising Sino/US tensions. AUD drops 1% on Chinese coal import concerns and the prospect of the central bank lowering interest rates. NZD fell 0.8% while Asia currencies on average fall 0.25% vs US$. Trading currencies, the MXN fell 0.9%, with ZAR and NOK both falling 1.1% vs US$ as investors leave risker currencies. Focus switches to US initial Jobless claims this morning and US election and stimulus updates.

Oil prices drop 2% on demand concerns as more countries increase lockdown measures due to rising global coronavirus cases. OPEC is taking a proactive approach to output controls and is likely to reduce output to match demand, likely reducing oil price volatility. C$ responded to the weaker oil prices and growing risk off sentiment, retreating from its 5-week highs. Our bias remains buy US$ dips in the current market environment. ADP Employment Changes data this morning followed by BoC Lane speech and EIA crude stocks change. Support 1.3140, with resistance at 1.3220, if breached look for possible extension to 1.3340 (oct 7th). 

Euro continues to weaken amid surging coronavirus cases and diminishing prospects of a US stimulus agreement. France announced a nighttime curfew in Paris, Germany reported its largest number of covid-cases since April and covid-cases continue to rise in Spain, Italy and the Netherlands. The US has offered to settle the ongoing aircraft subsidy dispute with the EU, releasing tariffs on wine etc, but at a cost of billions and the offer is unlikely to find support from the EU commission. The ECB President speaks today, and is expected to reiterate her pledge for accommodative policy. Expect further weakness in Euro under the current covid/economic environment. Support at 1.1670, if breached expect 1.1610 (Sep25th), with resistance at 1.1800.

GBP weakens below 1.30 with Brexit uncertainty, the possibility of a London lockdown. The Dutch PM Rutte says Brexit talks breakthrough is still possible, but more negotiations are required. The EU Summit will make or break the Brexit talks, the UK PM needs to make the decision to extend negotiations or not. London is expected to enforce tighter lockdown measures, while civic leaders in Northern England resist pressure to impose tighter lockdown measures. Brexit remains the primary dictator for GBP direction as investors wait for an outcome of a deal or no-deal Brexit. Support 1.2830 with resistance holding at 1.3050.