Tuesday June 30th, 2020

Investors appear to be torn between growing second-wave fears and the positive recovery signals from recent data releases. Upbeat US home sales and Chinese factory data provided investors optimism about the global economic recovery. The optimism is being offset amid rising coronavirus cases with record new infections reported in California and Texas, as well the Leicester city in the UK has reinforced lockdown measures. Adding to concerns is the potential for rising Sino/US tensions as China passes the national security law in Hong Kong. US$ index strengthened vs a basket of major currencies from a combination of month-end rebalancing and some safe haven US$ buying. Markets will focus on Fed Chair’s Powell testimony, Treasury Sec Mnuchin speech and US data releases for intraday direction. 

Oil prices slip -1.5% amid ongoing Covid-19 2nd-wave fears and the prospect of increased supply with Libya in talks to resume oil exports. C$ is holding at the higher end of the 1.36-1.37 range with weaker oil prices and stronger US$ adding pressure to the currency. Our bias remains for weaker C$ and buying dips scenario. Focus today is on Canada GDP data for direction ahead of Wednesdays Canada day, a weak number could see C$ retest recent C$ Lows. Support remains1.3625 with resistance at 1.3715, if breached expect 1.3800 (June 1st highs).

Euro losing ground to a stronger US$ despite positive EU inflation data as second-wave fears and rising Sino/US tensions revert investors to the safe haven US$. Still a concern for the EU, Spain’s GDP fell 5.2% in Q1/20 highlighting the impact of coronavirus lockdowns on the economy. Coronavirus cases within Europe remain low, but concerns remain that small local outbreaks could spread. ECB President has reiterated her pledge to fight deflation and do whatever is needed. Euro looks vulnerable to further weakness – Support holds at 1.1170, a break could see a retest of 1.1050 a key pivot level with resistance at 1.1300.

GBP remains under pressure after the UK GDP for Q1/20 was downgraded from -2 to -2.2%, its biggest contraction in 40 years. Weak GDP, the fear of a no deal Brexit and the Leicester city lockdown due to rising coronavirus cases are all negatives for the pound. Adding to concerns is the falling confidence in the UK PM’s reconstruction plan for the UK. GBP has breached the support at 1.2290, expect further weakness towards 1.2070 and resistance at 1.2335.