Tuesday 6th October, 2020

Risk-on sentiment remains after the US President returned to the White House and talks continue for the US fiscal stimulus package. The US House Speaker and US Secretary of State will speak again today, and optimism is growing as they towards a deal on stimulus legislation. The US$ has stabilized, equity markets are mixed, and oil prices inch higher. NZD and Asian currencies are flat on average, JPY strengthened 0.1%, while AUD is down 0.5% ask the RBA keeps rates on hold. Trading currencies, ZAR is flat, NOK is down 0.2%, and MXN is down 0.3% vs US$. The Fed Chairman will deliver remarks later today, he is expected to continue on message of low interest rates and a long recovery timeline. US Trade Balance data will be released, but market focus will remain on US Stimulus updates.

Oil prices firm slightly on fears of US refinery disruptions from storms building in the Gulf of Mexico and on the news that the US President returned to the White House. The oil strikes in Norway which cut the country’s output by 8% and adding support to the stronger oil prices. C$ edged stronger on rising oil prices and US$ weakness, testing 1.3247. Strong oil prices and risk-on sentiment supports a stronger C$ scenario, but a failure to secure a US stimulus agreement could negatively impact C$. Support at 1.3230, if breached expect 1.3170 (Sept 21) with resistance at 1.3330.

Euro strengthening stalled after the ECB President warned the recovery is “incomplete, uncertain, uneven”. In an interview with the WSJ in which she highlighted ECB is “very attentive” to exchange rate developments. On Brexit she said she is hoping for the best, preparing for the worst. Euro’s strength has been driven by a weaker US$, primarily driven by hopes of US Stimulus relief package being approved. Rising covid cases and increased lockdowns across major EU cities remain a key hurdle to Euro strengthening. Support/pivot at 1.1670 with resistance holding at 1.1800, if breached look for 1.1865 next.

GBP drops from key 1.30 level amid negative Brexit headlines. Comments from an EU official saying that the UK Internal Market bill is a “heavy blow to trust”. EC VP said “time is short” to reach a deal with EU saying that a no-deal Brexit becoming more likely. He went on to say the EU was left with no choice but to launch legal action against Britain if the UK Internal Market Bill is passed. The UK PM spoke at the party conference focusing on Brexit and also his Governments response to the coronavirus. GBP is vulnerable to negative US Stimulus news, and focus remains on Brexit updates. Support 1.2825 with resistance at 1.3000.