Wednesday October 14th, 2020

Risk-off sentiment re-emerges as vaccine trials stall, covid-19 cases continue to rise, and US stimulus hopes fade. Global coronavirus breach 38.5mio, and many countries reporting record daily new cases, the pausing of the vaccine trials by J&J, Eli Lilly & AstaZeneca has caused concerns for investors. The US Presidents proposal of a new stimulus aid fell in short of expectations, deadlock remains and with less than 20 days before the elections the prospects of a stimulus deal appears to be low. Many investors are now anticipating a W shaped recovery vs a V shaped recovery, analysts are « de-rating” growth forecasts. US$ extended its gains as investors depart riskier assets. Aud (-0.15%) remains under pressure as China imposes new restrictions on Australian coal. HKD, the central bank has intervened the most since 2009 to stop the currency strengthening and breaking its US$/HKD peg. ZAR under pressure from “bloated” debt concerns falling ½%. CNY strengthened ¼%, while Asian currencies were about 0.15% on average vs US$. Trading currencies NZD down 0.2%, NOK down 0.1% and MXN is down 0.4% vs US$. Intraday focus remains on US elections & Stimulus updates, with US PPI data also out this morning.

Oil prices stall as Norway and US production comes back online and demand concerns increase on 2nd wave fears. C$ supported by firm oil prices weakens from its 5-week high on a stronger US$. C$ remains relatively stable compared to its peers, with the likelihood of weaker oil prices our bias remains to buy US$ dips. Support 1.3082 (8 Sep), if breached 1.2990 (1Sep) with resistance at 1.3140, if breached 1.3220. 

Euro remains under pressure as US$ strengthens as risk-off sentiment returns. Rising concern of increased covid-lockdowns across the EU, weak inflation data and diminishing hopes of US stimulus has seen investors revert back to US$ buying. A number of ECB speakers today, including the EBC President will likely set the stage for more stimulus requests ahead of the EU summit on Thursday/Friday. Expect Euro to remain under pressure ahead of the EU summit tomorrow. Support at 1.1670 and with resistance at 1.1850.

GBP rebounds off overnight lows as the Brexit pendulum swings back to optimism as Brexit negotiations continue. A no deal Brexit would likely see BoE introduce negative interest rates which will be negative for GBP. The 2nd wave of covid and increased lockdowns across the UK is also adding pressure to the UKs longer-term economic recovery. Brexit negotiations remain the key driver for GBP, currently the PM’s deadline for negotiations is Oct15th. Support 1.2830 with resistance holding at 1.3000.