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DAILY BRIEF

 

 

The Daily Brief is a free email sent out each morning with information about overnight market movements and insights into the issues of the day. The brief is free and will help you keep an up-to-the-minute eye on the currency markets.

 

10 / 08 / 20

 

LONDON OFFICE

 

British Pound

Reuters: Sterling rose to a five-month high against the dollar and headed for $1.32 after the Bank of England struck a less pessimistic tone on the coronavirus-battered British economy. Much of the gain in the pound came shortly after the BoE announcement. The currency rose as much as 0.5%, extending its run to a high of $1.3184, its highest since March 9, before easing to $1.3144, up 0.2% on the day. Against the euro, it rose 0.5% at 90.01 pence, having earlier risen to a high of 89.85 pence. The central bank said the British economy would not recover to its size at the end of 2019 until the end of next year, later than its earlier estimate of a recovery by the second half of 2021. But its projections for 2020 were less grim than in May. “Overall, the BoE’s economic outlook is relatively less dovish than expected and the absence of a strong signal in favour of negative rates opens the door for further pound gains in the near-term,” MUFG analysts told clients.


Sterling has risen 8% against the U.S. dollar since July, with short positions in the Brexit-battered currency declining as traders shifted their negative outlook to the dollar. The pound has reversed nearly all the losses sustained against the dollar following a selloff in March and April fuelled by the pandemic. Its gains have been more laboured against the euro and the yen. “Today’s update from the BoE has no doubt triggered a little more short-covering,” said Chris Turner, ING’s global head of markets. “Cable may have some more upside on the back of a powerful dollar bear-trend – especially if the 1.3200 level breaks.” Though the BoE said its policymakers unanimously voted to make no changes to its key interest rate, which stands at just 0.1%, strategists at Citibank noted that by dropping the reference to the lower bound for policy rates, the central bank is potentially opening the door to cutting rates below zero. “We do not imminently expect negative rates due to the side effects on banks, but continue to forecast Bank Rate at -0.1% by mid-2021, once the COVID-19 and Brexit dust has settled,” they said in a note.

 

US Dollar

Reuters: The dollar nursed losses against major currencies on Friday ahead of the U.S. non-farm payrolls report, which some investors fear could reinforce the view that momentum in the world’s largest economy is slowing. Sentiment has turned against the greenback due to a combination of rising U.S. coronavirus infections, a steady decline in Treasury yields, and a lack of consensus in Washington over additional fiscal stimulus. Analysts say the dollar will continue to fall, particularly against the euro, the yen and Swiss franc, as expectations for a V-shaped recovery from the coronavirus epidemic fade and investors take a more sanguine view of markets. “I see further dollar weakness,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “Optimism for an economic recovery is not backed up by the data. Safe-havens are very high, but stocks are also high, which doesn’t make sense. The party has to end at some point.”


Against the euro, the dollar stood at $1.1868 on Friday, close to its weakest in more than two years. The British pound bought $1.3134, close to its strongest level since March. The dollar teetered near a five-year low against the safe-harbour Swiss franc at 0.9109. Against the yen, which is also considered a safe currency, the dollar traded at 105.57, not far from a four-month low. Non-farm payrolls due later on Friday are widely expected to show U.S. jobs creation slowed in July from the previous month, indicating a resurgence in coronavirus infections is undermining the economic recovery there. Earlier this week, the five-year Treasury yield hit an all-time low, and the benchmark 10-year yield fell to its second-lowest ever, further reasons to shun the greenback. The dollar index against a basket of major currencies last stood at 92.864, close to a two-year low. U.S. Republicans and Democrats have so far failed to reach an agreement on the cost of fiscal stimulus measures that many investors say is necessary to prevent the economy form losing more momentum. Spot gold, another asset sought during times of heightened uncertainty, rose to a record high early in Asian trading, another sign of the dollar’s woes. Some investors are also worried about increasingly frayed Sino-U.S. relations. U.S. President Donald Trump on Thursday issued an executive order banning transactions with ByteDance, the Chinese company that owns the video-sharing app TikTok, saying the app is a threat to national security. Trump also said he will ban transactions with Chinese firm Tencent Holdings Ltd, which owns the WeChat messaging app. The bans will start in 45 days and mark an escalation of a row over China’s ambitions in the technology sector.

 

South African Rand

Reuters: South Africa’s rand fell to its lowest in 10 weeks on Thursday, as investors’ risk appetite dwindled and the dollar found some support after data showed U.S. jobless claims fell slightly in the latest week. At 1523 GMT, the rand was 1.18% weaker at 17.5350 per dollar, after hitting a session low of 17.6650, its weakest since May 29. The dollar strengthened after data showed the number of Americans seeking jobless benefits fell last week. Fears that economic recovery across major economies are diverging have been playing out in currency markets, with the dollar’s two-year supremacy at risk. The rand has failed to benefit from the dollar’s decline, though, with investors sitting on the fence. 


Economists at ETM Analytics said this might to some degree be a function of South Africa’s own risks. The country has Africa’s highest number of COVID-19 cases at more than 500,000, and was already in an economic recession before the pandemic struck. The country is likely to see a slower recovery than its emerging-market peers, reducing demand for the rand. The Johannesburg Stock Exchange continued its bull run backed by a commodity-led rally and ahead of a fiscal aid package to be announced in the United States. The FTSE/JSE All Share Index rose 0.05% to end the day at 57,657 points while the FTSE/JSE Top 40 Companies Index rose to an almost two-year high in intraday trading before ending the day up 0.13% to 53,351 points. The banks continued to underperform the broader market with the JSE banking index down 0.41%. Bonds gained, with the yield on the benchmark 2030 bond down 3.5 basis points at 9.290%. 

 

Global Markets

Reuters: Asian shares tumbled on Friday after U.S. President Donald Trump ratcheted up already-heightened tensions with Beijing by banning U.S. transactions with China’s tech giant Tencent as well as ByteDance, the owner of video-sharing app TikTok. MSCI's broadest index of Asia-Pacific shares outside Japan lost 1% and Hong Kong's Hang Seng fell 2%. Tencent, Asia's second-biggest company by market capitalisation, dropped 9.0%. Mainland China's CSI 300 Index fell 1.3% while Japan's Nikkei slipped 0.6%. S&P500 futures slid 0.5%. Trump’s executive orders came as his administration said this week it was stepping up efforts to purge “untrusted” Chinese apps from U.S. digital networks. Tencent owns the popular WeChat app. The announcement blew off any excitement from China’s trade data, which showed exports surged 7.2% from a year earlier, way above economists’ forecast of 0.2% fall.


The news also poured cold water on what had been a mildly positive mood in financial markets on hopes U.S. policymakers will finalise stimulus worth at least $1 trillion to support the country’s fragile economy. On Wall Street in the previous session, the S&P 500 gained 0.64% and the Nasdaq Composite added 1%, marking the fourth straight day of record peaks. Investors expect another U.S. stimulus package, though the White House and Democrats remained far apart about its size and what to include. Risk appetite also got a mild boost after data showed on Thursday the number of Americans seeking jobless benefits for the first time fell last week to the lowest level since March. Still, with a staggering 31.3 million people receiving unemployment checks in mid-July, there remain worries the labour market is stalling as the country battles a resurgence in new COVID-19 cases. The next focus is a closely-watched employment data by the U.S. government, due at 1230 GMT, which is expected to show a payroll increase of 1.58 million in July, compared to 4.8 million in June. U.S. bond yields have flirted with historic lows, supported by investors’ conviction that the Federal Reserve will keep monetary policy loose for the foreseeable future and could strengthen its commitment to low rates as early as next month. The 10-year U.S. Treasuries yield fell to a five-month low of 0.504% and last stood at 0.535%.  In currency markets, the euro fell 0.3% to $1.1838 while the Australian dollar shed 0.35% to $0.7214. The Chinese yuan eased 0.2% to 6.9670 per dollar. In commodity markets Gold hit a record high of $2,075.2 per ounce and last stood at $2,064. Silver has been ballistic in recent weeks and hit a seven-year high of $29.8384 per ounce, having gained 60% so far this quarter. Oil prices were little changed, with Brent futures down 0.1% at $45.04 per barrel.

HONG KONG OFFICE

 

US Dollar

Reuters: The U.S. dollar was trying to keep a rare rally together on Monday as its longest losing streak in a decade left much of the market structurally short of the currency and vulnerable to a squeeze on any upbeat news. Bears were caught out by a better payrolls report on Friday, which pushed Treasury yields higher into this week’s massive $112 billion debt sale. Yet the dollar still ended lower for the seventh week in a row. Turnover was light with Tokyo on a holiday and considerable uncertainty on whether U.S. policymakers can agree a new package of fiscal support for the virus-hit economy.

 

The dollar index at 93.367. The euro held at $1.773 on Monday, having hit a two-year high of $1.1915 last week, which now acts as major resistance. Support comes in around $1.1755 and $1.1694. Against a basket of currencies, the dollar was a fraction firmer at 93.434 and just above a two-year trough. The dollar was a little steadier on the yen at 105.89, well above the recent low of 104.17 but facing stiff resistance at 106.46. The British pound was a tad lower at $1.3057 after hitting a five-month high of $1.3185 last week. The risk sensitive Aussie dollar nursed its losses after falling 1.1% on Friday. 

 

Investors were wary of a fresh flare up in Sino-U.S. tensions with trade talks scheduled for August 15 even as Washington imposed sanctions on senior Hong Kong and Chinese officials. Any breakdown in talks would tend to benefit the dollar, and the safe-haven Swiss franc, at the expense of the Japanese yen and commodity currencies such as the Australian dollar. 

 

Chinese Yuan 

FXStreet: USD/CNH takes rounds to 6.9725 amid Monday’s initial trading. In doing so, the pair struggles to justify upbeat inflation data from China. The reason could be traced from the fresh Sino-American tension after Trump administration levied fresh sanctions on Chinese apps and Hong Kong Leader. 

 

Technically, the pair aims for a 10-day SMA level of 6.9780 as nearby resistance before targeting a falling trend line from June 29, currently around 6.9968. Although weak RSI conditions defy calls of any further moves past-6.9968, bulls’ attempt will have an additional hurdle in the form of the 7.000 threshold to justify their strength.

 

On the contrary, 6.9530 and the monthly bottom around 6.9320 may entertain short-term traders during the pair’s fresh downside. If bears manage to firm the grip below 6.9320, March month’s low near 6.9050 could well return to the charts.

 

Australian Dollar

FXStreet: AUD/USD attacks intraday high of 0.7170, up 0.12% on a day, during the early Monday. The Aussie pair dropped on Friday amid the broad US dollar strength. However, the recent shift in the market’s mood joins upbeat inflation numbers from China to challenge the bears. Talking about the virus, Australia’s second-most populous state, also the epicenter of the pandemic, Victoria, marks the biggest single-day jump in deaths due to the COVID-19. As per the ABC News published before a few minutes, “Australia's coronavirus death toll hits 314 as Victoria announces a daily record of 19 deaths and 322 new cases in the past 24 hours.”

 

On the contrary, downbeat updates concerning the US-China tension and the coronavirus (COVID-19) keeps challenging the risk-tone sentiment. Having turned off the business tap for China’s TikTok and WeChat, as well as sanctioning the Hong Kong Leader Carry Liam, the American policymakers are alleging Beijing for its suspected meddling in the US Presidential elections.

 

Against this backdrop, S&P 500 Futures fails to mark any clear direction while stocks in Australia and New Zealand stay mildly positive. Having witnessed the initial reaction to the key Chinese data, markets may jump back to macros for fresh impulse. The reason is the lack of major data/events on the calendar as well as the present dominance of qualitative factors. While 0.7200 and 0.7240 restrict the pair’s immediate upside, an ascending trend line from May 22, at 0.7115 now, followed by 0.7105-7100 area comprising 21-day EMA and 0.7100 round-figures, limit the quote’s short-term declines. 

 

Global Markets

Reuters: Asian shares started cautiously on Monday as investors kept one eye on flaring tensions between the United States and China and another eye on U.S. fiscal stimulus after talks between the White House and Democrat lawmakers broke down. Trading was expected to be light with Japanese and Singaporean markets closed for public holidays. MSCI’s broadest index of Asia-Pacific shares outside Japan stayed below a 6-1/2 month peak touched last week to be last at 560.17. Australian shares recouped Friday’s losses to be up 0.7% while South Korea’s main index added 0.4%. 

 

Global equities have rallied hard since hitting a bottom in March on central bank bazooka and government largess around the world, although rising coronavirus cases and deaths in many countries have tempered investor enthusiasm recently. Also weighing on sentiment is uncertainty over U.S. fiscal stimulus after President Donald Trump signed a series of executive orders to extend unemployment benefits after talks with Congress broke down. The orders would provide an extra $400 per week in unemployment payments, less than the $600 per week passed earlier in the crisis.

 

Investors were also circumspect after U.S. President Donald Trump signed two executive orders banning WeChat in 45 days’ time while announcing sanctions on 11 Chinese and Hong Kong officials. On the data front, China releases inflation figures later in the day and monthly activity indicators on Friday. In commodities, gold held on to gains at $2,030 an ounce after hitting an all-time high of $2,072.5 last week. Oil prices were higher with Brent crude rising 36 cents to $44.76 a barrel. U.S. crude added 43 cents to $41.65.

 

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