Tuesday September 1st, 2020

The US$ remains under selling pressure with the US$ index hitting 2-year lows, while equity and commodity markets strengthen. In China the Caixin manufacturing PMI beat expectations for August and showed continued positive signs of a Chinese recovery from the covid lockdowns. The Chinese CNY rallied 0.4%, hitting its highest level in 16-months vs US$. Commodity prices head higher on a weaker US$ supporting commodity currencies, while Asian currencies boosted by Chinese data were up ¼% on average. ZAR rallied almost 2% as domestic political issues were overlooked, and the currency found support from rising commodity prices and a weakening USD. Intraday US Markit Manufacturing PMI will be watched closely for intraday direction. We may see some US$ consolidation today, but the trend still appears to be towards a weaker US$.

Oil continues to edge stronger driven by a weaker US$ and supported by strong Chinese PMI results. C$ ends August up almost 3% vs US$, posting its biggest gain in over a year. C$ finding support from a weakening US$ and stronger commodity prices looks set to test 2020 highs. Canadian PMI data alongside US PMI data will provide intraday direction. Support remains at 1.2952 (Jan7th), if breached 1.2795 (Oct2018) with resistance at 1.3090 (minor) and then 1.3185.

Euro tests 1.20 level as investors continue to exit US$ post the Fed Chairs introduction of the AIT policy. EU manufacturing PMI came in as expected, but for the most part the data is secondary to the repositioning of US$ longs. Simmering in the background is the rising Covid cases in both France and Spain, EU’s 2nd & 4thlargest economies respectively. Growing concern over the prospect of a 2nd wave across Europe remains the single currencies main weakness. The US Manufacturing PMI data may provide some intraday distraction, but in the short-term US$ appears to have room to weaken further. Support holds at 1.1850, with resistance at 1.2000 followed by 1.2196 (April 2018).

GBP rebounds to test fresh 8-month highs as US$ comes under renewed selling pressure. Weaker than expected UK PMI, ongoing Brexit issues and the prospect of increased taxes haven’t tempered GBP’s appeal. The focus today will be on the Chancellor of the Exchequer and his plan to plug the GBP +2 trillion deficit which has ballooned with the coronavirus. Tax hikes are anticipated, but where they are targeted and to what amounts may have an impact on GBP short term direction. Support at 1.3360 with resistance at 1.3510 (Dec2019), If breached 1.3610 (May2018)