Tuesday August 25th, 2020

Currencies strengthen after the Sino/US trade phone call and vaccine optimism helps improved the “risk-on” mood. The US Trade Representative and Treasury Secretary held a phone call with the Chinese Vice Premier in which they reaffirmed their commitment to the phase one trade deal. The UK Financial Times reported that the US government was considering fast-tracking AstraZeneca’s experimental vaccine for the coronavirus. The slight easing of Sino/US tensions and vaccine hopes saw equity markets strengthen and the US$ come under renewed selling pressure. The currency markets response was mixed with European currencies rally +1/4% whereas Asian currency markets were more subdued up just 0.1% on average. A cluster of US data releases including US Housing Price Index, New Home Sales and US Consumer Confidence will provide intraday direction. 

Oil prices are mixed with US WTI down slightly as the twin storms force US rig closures reducing oil production. C$ continues to underperform its peers as speculators on the CFTC continue build short C$ positions. 1.3120 remains a key pivot point for C$, the confirmation of the Sino/US trade deal, vaccine hopes, and strong oil prices favor a test of C$ shorts resolve. This week, the BoC Governor to speak at the Jackson Hole Symposium on Thursday and Canadian GDP is due out on Friday. Key support holds 1.3120 (Jan23) with minor support at 1.3188, resistance remains at 1.3265.

Euro edges stronger boosted by Sino/US trade confirmation and positive German IFO data. German GDP data came in slightly better than expectations, IFO improved MoM hitting expectations while Swiss employment fell slightly in Q2. The Euro’s failure to extend its rally is wearing on investors and with rising coronavirus cases across the continent, sentiment is starting to turn bearish Euro. Markets will remain somewhat sidelined until Thursday’s Jason Hole Symposium. Support lowers to 1.1755 with resistance at 1.1850.

The resilient GBP ignoring weak UK data and stalled Brexit talks rebounded against a falling US$. The Confederation of British Industry trade survey fell significantly from an expected +8% to -6% in Aug vs July’s +4%. GBP is still considered to be lagging behind its peer’s and positive Sino/US news alongside vaccine hopes has brought out some fresh GBP buyers. US data will provide intraday day direction. Support at 1.3080 with resistance at 1.3190, our  bias is to sell GBP on rallies.