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Intermarket:
- SP Futures 3218 (-0.65%)
- EUSTXX 3280 (-0.64%)
- Crude Oil 40.95 (-0.24%)
- US 10YR 0.579 (-0.34%)
- EurUsd 1.1727 (+0.12%)
- UsdJpy 105.06 (-0.00%)
- DAX 12835 (-0.03%)
Markets are somewhat calmer into today’s European session. The main market drivers of late, Gold and Silver, have been rather calm after some profit taking was seen yesterday. Also, with FOMC due later today, it makes sense for positions to be trimmed. Into month-end and with somewhat extended sentiment across the board, our desk does expect some USD buying to emerge.
With that said, there shouldn’t be any surprises from Powell today. Recent Fed speakers have shown a common commitment to keep rates low for an extended period of time, and the markets have already discounted this. Hence, a dovish surprise is not likely to materialise. Any discussion on YCC or further QE is expected between September and December, not right now.
The Covid-19 situation is also still making headlines as Australia is battling with the second wave, China saw higher numbers overnight and Hong Kong’s hospital system seems stresses by the outbreak. Europe is also seeing a resurgence in the virus.
Ahead of the Fed, market will focus on the political battle in Washington where congress continues to struggle to find agreement ahead of the expiry of extended unemployment benefits this week.
Elsewhere, a MoF official said Japan is “closely watching FX market moves”. In another time, this would have traders on the edge of their chairs discounting the possibility of a BoJ intervention to weaken the JPY. Not so today: prices are rather dull.
Matters that Matter:
- US Dollar near 2-year low as COVID keeps Fed in a bind; Fed faces viral wave, mounting risks to recovery
- U.S. Congress, White House struggle to find deal on new coronavirus aid
- Japan closely watching FX market moves – MoF official
- Queensland will close its borders to all of Greater Sydney from 1 am Saturday.
- New Zealand’s government will start charging some travellers for the cost of their two-week stay in quarantine; but the fees - which have proved controversial here - won’t apply to returning New Zealanders
- Fauci: Default position should be to reopen US schools; teachers should have PPE, masks when needed; US schools reopening must be flexible
MAJORS 1-DAY VIEW:
USDJPY
• The potential for a profit taking bounce is rising. However, in the absence of a reversal pattern the outlook for Wednesday remains cautiously bearish.
• Double bottom yesterday-today at 104.96, with decent local buying into Tokyo sub-105.00.
• Massive expiry today: 1 bln at 105.00
EURUSD
• Sentiment traded sideways yesterday so signals for Wednesday mimick yesterdays: sell rallies.
• Support at yesterday’s 1.1699 low and break ends sequence of 8 higher daily lows, would confirm bearish divergence in momentum.
AUDUSD
• Signals for Wednesday are weak and unclear, but the loss of upside momentum has left a cautiously negative bias, so we prefer to sell rallies.
• AUD moving with Metals, so resilient despite weakness in risk sentiment.
• Resistance at 0.7184 with offers touted around .7200/10
GBPUSD
• Daily sentiment remains overstretched and the potential for a deeper profit taking pullback is growing. However, in the absence of a reversal pattern, the outlook for Wednesday is just cautiously bullish.
• Low liquidity and month end flows may spark volatility
• Break of 1.2812 June high targets 1.3020, 76.4% 2019/20 decline
FX Relative Strength Grid
Key: Week Bias up (down) if there has been a daily close above (below) prior weeks’ high (low).
%-Location is whereprice is, relative to the prior week range. Above 100% means we passed prior week high. Below 0% means we passed prior week low.
%-Change: change in %-location since yesterday at 07.00 CET.
Comment: Strength is seen in CHF and GBP, but USD is also gaining some strength into month-end especially against NZD.
FX Relative ATR
Key: 1 Day vs 13 Day ATR. Values > 100% mean Day ATR expansion. Values < 70% mean Day ATR contraction.
Comment: Ranges remain healthy into month-end.