Tuesday September 22nd, 2020

The US$ strengthened to six-week highs overnight as investors exited risker currencies over second-wave coronavirus fears and increased lockdown restrictions across Europe/UK. The US$ index gave up some of its overnight gains at the start of the North American session vs a basket of major currencies. The volatile ZAR was down 3% on Monday and extended its losses down 0.7% vs US$ today. CNY found support from stronger fundamentals and strengthened almost ½% vs US$. NZD rebounded from its losses yesterday up ¼%, while Asian & AUD are flat on average vs US$. Despite firmer oil prices NOK is down 0.2% while MXN is flat vs US$. The potential for further US$ volatility remains present in the run up to the US elections, the uncertainty over US federal stimulus and the surge in global covid-19 cases. Intraday watch the US Existing Home Sales (MoM Aug) data and US Fed Chair testifies where he is expected to reiterate his lower interest rate message.

Oil prices recover slightly from Monday’s selloff, but concerns linger over demand as Europe enters a new lockdown phase. With Gulf Coast storms easing, Libya oil production expected to come back online, expectations are that oil prices will likely ease further. C$ has rebounded from Monday’s selloff, but is C$ is down almost -2% month-to-date vs US$. Oil prices remain the primary driver for C$, with increased lockdown measures across Europe, one would expect oil prices will likely remain under pressure as demand is anticipated to fall. Bias remains to buy US$ on dips vs C$. Support at 1.3270 and resistance holding at 1.3350, if breached look for 1.3420

Euro remains under pressure hitting six-week lows amid risk-off sentiment and the resurgence of covid-19 across Europe. Adding further pressure to the Euro was the ECB’s Presidents apparent U-turn on Monday saying the central bank will be “attentive” to the appreciate of the single currency. Over the last 3-months Eur has rallied almost 4.5% vs US$, almost 10% over the last 6 months and hence the ECB’s concern for its rapid appreciation. Expect to see the Euro consolidate around current levels with support at 1.1720 and resistance at 1.1850.

GBP tested fresh two-month lows (1.2717) amid fresh lockdown restrictions and head of the BoE Governor speech. The BoE Governor Bailey played down the chances of negative interest rates, his comments gave investors some renewed confidence and saw GBP to rebound to 1.2800 vs US$. UK PM to address the country today to spell out further restrictions set to tackle the surge in coronavirus cases across the UK. Brexit is still present but has taken a backseat to covid-19 and lockdown measures, but deadlines are looming. Support now sits at 1.2720 with resistance at 1.2850.