Tuesday May 12th, 2020

US$ holds steady amid second wave fears, Sino/US tensions and potential negative US interest rates. Global currency markets were relatively stable within existing trading bands, with the US$ index steady vs a basket of major currencies. Coronavirus updates continue to dominate markets as global cases approach 4.3mio cases, as China, S.Korea and Germany report a growing number of new cases. The US’s administration’s senior doctor Anthony Fauci testifies in front of a senate committee where he could warn about the dangers of reopening too soon. The US President calmed some tensions with China when he dismissed the idea of reopening phase one trade negotiations, but at the same time blocks purchase of China stocks in specific Funds. The Federal Reserve saying they will do what it takes to support the economy, asked about negative interest rates the response was “I don’t anticipate it being a tool that we would be using in the US”. Attention switches to US CPI date out this morning and which should provide some intraday direction.

Oil prices higher boosted by Saudi Arabia’s pledge to deepen 1mio bpd output cuts in June helping crude prices to rally 3%. C$ opens steady around 1.4000 vs US$ with stronger oil prices supporting the loonie. The Canadian government expanded its lending programs to large and mid-sized companies to assist them through the current economic downturn. No Canadian data today, so expect C$ to track oil prices and respond to US CPI data. Support 1.3925 and resistance 1.4150.

Euro maintains its holding pattern around the 1.08 level vs US$ as “second wave” fears increase amid Europe’s attempt to reopen its economies. Increases in Germany / European of Covid-19 cases could see a resurgence of US$ safe-haven buying. ECB and German courts continue to disagree over the Pandemic Emergency Purchase Program (PEPP) legality, the German Chancellor has now stepped in to help ease the current tensions. Intraday coronavirus updates and US CPI will provide intraday direction. Support 1.0790 and resistance 1.0880

GBP strengthens slightly as confusion and mixed messages related to the PM’s new lockdown instructions and the PM’s shifting stance. The result is that the UK is seen as not having a clear plan to remove lockdown restrictions which weighs on GBP. June 2nd Brexit deadline is looming without clear direction or results in the current round of negotiations. UK has the highest mortality rate in Europe from Covid-19 and a concern of a second wave will limit the UKs ability to loosen it’s lockdown restrictions. In the short-term GBP remains vulnerable to further weakness, resistance remains 1.2425 with support at 1.2265.