Tuesday August 4th, 2020

Political Wrangling over the US fiscal relief package, the expiration of the Federal unemployment benefits program and the ongoing coronavirus concerns continue to weigh on the US$. Monday’s US ISM Manufacturing Purchasing Managers’ Index beat expectations in July, but the employment component remains weak. Equity markets are positive, Gold hits another new high, but oil prices slip and US$ index remains under pressure. Aud rallies with its central bank bond buying, Asian currencies strengthen marginally, while CNY is flat with Sino/US tensions capping its gains. Zar & Rub both drop over 1% vs US$ on weaker oil, rising covid concerns and investor risk aversion. Intraday focus remains on the US fiscal stimulus package updates and US Factory Orders data results.

Oil prices are relatively stable considering the easing of the oil output restrictions and the ongoing demand fears related to the coronavirus. Other oil news, BP halves dividends after record losses, China only fulfils 5% of the Sino/US energy deal & Venezuela’s oil exports remain stagnant at below 400k BPD. C$ strengthened overnight on general US$ weakness amid weaker oil prices. Expectations that oil prices may drop a further 10% over the coming months as increased oil supply comes back online will likely bias a weaker C$ vs US$. Intraday investors will focus on CAD Markit Manufacturing PMI for direction. Support holds at 1.3365 with resistance at 1.3480.

Euro rebounded to briefly test 1.18 vs US$ on a weaker US$ and positive economic data. Better than expected Euro PPI data and a surprising drop in Spanish unemployment which fell 90k in July help provide Euro additional support. Covid flare ups across the continent appear to be under control and are not causing any investor concern. Support 1.1700 and resistance at 1.1805 with the next key resistance at 1.1996 (May2018).

GBP bounced off its lows to briefly retest 1.31 vs US$ on a weaker dollar. In the UK 4.3 mio brits are currently in lockdown, with the possibility that a lockdown in London could be next. The reality of a lockdown in the financial capital would likely put pressure on GBP. Also capping GBP is the lack of progress in Brexit talks as well that the prospect of a trade agreement with the US is low. Adding to the UK stress is its ongoing Sino/UK tensions over Huawei and Hong Kong. But the pound remains strong and bias remains to sell on any rallies. Minor support at 1.3010 if breached expect 1.2925 with resistance at 1.3155.