The Debts Continue To Rise

FX markets have been joggled into action, as risk sentiment has not precisely fallen off a cliff, just as the bears always seem to expect on a Monday.

Although if pressed for a view, this morning’s price action seems more related to position-squaring on new USD longs rather than anything else.

Overall, the FX market has a similar lean today as the one exhibited last week, where traders stayed for the most part, in a cautionary “wait and see mode”, as the virus case-counts sprung higher stateside.

Below are thumbnail sketches of the events and data that shape the macro picture.

Country

US Dollar Slips

1. The dollar continued to grind higher on Friday, with the Dollar Index creeping up by 0.19% to 97.61. With equity markets climbing into the green this morning, the dollar has slipped across the board in muted trading. EUR/USD is up 0.15% to 1.1190, with AUD/USD up 0.30% to 0.6850, while USD/JPY is unchanged at 108.85.
2. A similar pattern is happening across the regional space, with the dollar retreating slightly. The rally in oil prices over the past two days is likely to lend support to the Indonesian rupiah and Malaysian ringgit.

England

1. Speaking in a Bloomberg TV interview on Monday, the Bank of England (BOE) Governor Andrew Bailey said that would prefer shrinking the balance sheet before raising rates again in the future.
2. As expected, the Bank of England (BOE) announced, at its June meeting, a boost to its quantitative easing (QE) programme by GBP100bn. The additional bond purchases will take the total value of the Asset Purchase Facility (APF) to GBP745bn.

Europe Stocks take the dip

1. Stocks in Europe traded lower in early action Monday on worries the spread of coronavirus will force countries to limit or reverse their lockdown easing measures.
2. Up 3.2% last week, the Stoxx Europe 600 SXXP, -0.21% traded 0.2% lower.
3. The German DAX DAX, -0.19% , the French CAC 40 PX1, -0.22% and the U.K. FTSE 100 UKX, -0.28% also slipped.
4. After the 208-point fall for the Dow industrials DJIA, -0.80% on Friday, U.S. stock futures YM00, 0.76% were pointing higher on Monday morning. U.S. stocks on Friday were impacted by Apple’s decision to close stores because of the virus spread.
5. The news on the coronavirus front hasn’t gotten better since then.

Australian Data

1. Policy guidance in RBA Governor Lowe’s speech earlier this morning was consistent with recent comments (i.e., interest rates at current levels for the foreseeable future), but his remarks on AUD were surprising. Lowe said that it is hard to argue that the currency is overvalued.
2. Note that the currency was not mentioned at all in the RBA’s June 2 policy decision statement. The AUD was unmoved.
3. T he Australian state of Victoria has extended control protocols for another four weeks.

The RBZ meets this week

1. The Reserve Bank of New Zealand meets following the larger than expected contraction in Q1 (-1.6% vs. 1.0%) but will likely be content with the policy setting (0.25% cash rate) after doubling the long-term asset purchase plan to NZ$60 bln last month from NZ$33 bln announced in March.

China

1. China left its one and five-year LPR’s unchanged this morning at 3.85% and 4.65% respectively. The result was as expected with China forging its own path monetarily through the pandemic slowdown. That appears to be via short-term liquidity injections, reductions in RRR rates, and instructing Chinese Banks to make fewer profits and lend more.
2. US-China relations look less sour after talks between US Secretary of State, Michael Pompeo, and China’s senior foreign policy official yielded new commitments regarding the phase one trade deal. Pompeo tweeted that China had reasserted its commitment to honoring the stipulations of the agreement. A key element is China’s promise to buy significantly more US agricultural goods, an endeavor hampered by the COVID-19 outbreak.

Market

Oil continues to surge

1. In an interesting divergence from the equity markets, oil prices continued to probe higher on Friday, although they gave back some of their gains late in the session. Brent crude traded to just shy of $43.00 a barrel, before falling to finish 1.35% higher at $42.00 a barrel. WTI broke through $40.00 a barrel, testing $40.50 a barrel, before retreating. It still though, finished higher by 1.90% at $39.80.
2. Trading is directionless in Asia, with Brent firming slightly to $40.30 a barrel, and WTI easing 20 cents to $39.60 a barrel. Both contracts appear content to adopt a wait and see attitude on a quiet news day in Asia.
3. Brent crude’s next technical target is $43.40 a barrel. Above there, it should attempt to close the chart gap from early March, and rally to $45.00 a barrel. WTI meanwhile, has traced pout a double top at $40.40 a barrel, which will probably provide some tough resistance initially. After that, its technical target is the $44.00 region followed by $45.00 a barrel, its 200-day moving average.

Gold signals

1. Gold caught the COVID-19 risk aversion wave on Friday, powering 1.25% higher to its daily resistance at $1745.00 an ounce. It has headed straight to go this morning in Asia, jumping to $1760.00 an ounce, before settling 0.50% higher at $1752.00 an ounce.
2. Gold’s price action is hinting that although risk aversion is restrained on equities and energy, tensions could be rising below the surface. Gold has resistance at $1760.00, followed by the May high at $1765.00. It is the later level that is the critical one, forming the top of the multi-month $1660.00 to $1765.00 range.

Here’s a look at all the important market-moving factors for the week:

Week Ahead

All times listed are EDT

Monday

10:00: US – Existing Home Sales: expected to print at 4.10 M, down from 4.33M last month.

Tuesday

3:30: Germany – Manufacturing PMI: seen to jump to 41.5 from the low of 36.6 previously.

4:30: UK – Manufacturing and Services PMI: the former expected to come in at 43.8, up from 40.7; the latter to come in at 40.5, from the 29.0 last month

10:00: US – New Home Sales: probably edged higher to 640K from 623K.

22:00: New Zealand – RBNZ Interest Rate Decision: forecast to remain steady at 0.25%.

Wednesday

4:00: Germany – Ifo Business Climate: to rise to 85.0 from 79.5.

10:30: US – Crude Oil Inventories: anticipated to plunge to -0.152M from 1.215M.

Thursday

China and Hong Kong closed for holidays

8:30: US – Core Durable Goods Orders: forecast to jump to 2.1%, rebounding from -7.7%.

8:30: US – GDP: predicted to have remained flat during Q1 at -5.0%

8:30: US – Initial Jobless Claims: last week’s figure came in a bit worse than expected at 1,508K.

Friday

8:30: US – Personal Spending: expected to have vaulted to 9.0% from an abysmal -13.6%.

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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