Tuesday May 26th, 2020

Markets appear to be shrugging off the Sino/US tensions with investors switching back to a “risk on” strategy. Monday’s positive German IFO data has increased expectations that today’s US Consumer Confidence will bounce from its lows in April. Vaccine hopes are have also helped boost investor confidence as Novavax, a US company is set to start human trial in Australia. US$ slipped as investors edged away from safe haven buying, with the US$ index down against a basket of major currencies. Trade and oil related currencies rallied with AUD, NZD, ZAR & NOK all rallying +1% vs US$, whereas CNY and Asian currencies remain relatively flat vs US$. A number of US data releases today will provide intraday direction. The elephant in the room remains the ongoing Sino/US tensions, any fresh actions will most likely see a rebound in US safe haven buying.

Oil prices firmed as OPEC++ follow through on their output cut commitments, alongside fuel demand growth as lockdown restrictions ease. Russia commented that its oil is “balancing” as its output cuts almost hit its 8.5mio bpd for May ahead of OPEC+ meeting in June. C$ rallied receiving a double boost from a weaker US$ and rallying oil prices. The strong base support level at 1.3850 which has held on multiple attempts since April, could be retested again. A break of 1.3850 would be significant and could see a test of 1.3730 and a possible extension to 1.3460 (9 March). Support 1.3850 with Resistance at 1.4000 

Euro rebounds off its recent lows as “risk on” sentiment returns and US$ eases, with focus shifting to the opening of European markets. Germany is set to remove travel warnings in mid-June and its Reproductive indicator (R) remains below 1 at 0.83. Optimism regarding the EU fund is growing and expectations that the Eur500 bln program now seems to have a higher chance of passing. Intraday US data releases and Sino/US news will be watched closely for direction. Euro remains doggedly within a defined trading range 1.0880-1.1050, a break of 1.1050 would be significant for Euro.

GBP rallies on a weaker US$ and reports that the EU is ready to make concessions to the UK on fisheries. With just over a week until the June 2nd Brexit deadline at which both parties can opt to extend the transition period, with the UK PM opposes, a “no deal” Brexit is appearing more likely. The reported breakthrough in fisheries is a positive step forward, but the ongoing Brexit talks remain at loggerheads. The prospect for the GBP remains tentative with the possibility of a “no deal” Brexit, the potential for negative UK interest rates and the governments lack of clarity for reducing the lockdown restrictions.  Support rises to 1.2250 (minor) 1.2165 major, with resistance at 1.2425.