08-Jul-2020

1) GBP/USD: Will Sunak Send Sterling Higher? Brexit, Hong Kong, US Coronavirus Could Cap Climb
2) EUR/USD: Ready To Resume it’s Rise? Euro Showing Resilience alongside Uptrend Support
3) US Dollar Wavers as US Coronavirus Death Rate Jumps

1) GBP/USD: Will Sunak Send Sterling Higher? Brexit, Hong Kong, US Coronavirus Could Cap Climb

Sunak is starting with the young – a job placement plan for around 350,000 18-24 year-olds is at the center of Chancellor Rishi Sunak’s highly-promoted fiscal stimulus plan. The resident of No. 11 is set to lay out measures to kickstart the economy, and some of the ideas have already been released to the press.

Is this £2 billion scheme sufficient to convince markets about the prospects of the UK economy? Previous ideas regarding green investment have been unfavorably compared with parallel schemes in major European countries.

The government is backed by the central bank, which continues buying bonds. Andy Haldane, Chief Economist at the Bank of England, said that the recovery is faster than he – or most – have expected, but uncertainties remain high. It depends on the virus and potential new peaks. Apart from Leicester, the UK continues its gradual return to normal.

Many are longing for the days that Brexit rather than COVID-19 topped the agenda. and that remains deadlocked despite high-level talks. Chief EU Negotiator Michel Barnier visited London and met his British counterpart David Frost for dinner – which included fish. The fate of fisheries is one of the points of contention in talks.

While their silence following the encounter may signal progress, headlines coming out from their bosses are less encouraging. Prime Minister Boris Johnson told German Chancellor Angela Merkel that the UK is ready to end the transition period without a trade deal. Talks may become more serious only after the summer.

Crossing the pond, US coronavirus figures have resumed their rise after a temporary drop due to the “weekend effect.” Cases are rising in most US states, with the focus on Florida, Texas, California, and Arizona. Hospitals in Houston are strained and the mortality rate – which was consistently falling – is on the rise again. New figures will be closely watched.

President Donald Trump continues dismissing the disease and focuses his ire on external factors. The US officially announced it is leaving the World Health Organization.

Officials at the White House are considering attempting to break the Hong Kong Dollar peg to punish China for tightening its grip over the territory, yet investors seem to shrug off such prospects. The HKD remains in demand. Sino-British relations have also worsened after the UK announced it is opening its doors to most residents of its former colony.

Pound/dollar has broken above a downtrend resistance line that capped it since late June and is trading above the 50, 100, and 200 Simple Moving Averages on the four-hour chart. It is also benefiting from upside momentum. The Relative Strength Index is nearing 70 – indicating overbought conditions. Another move higher and the RSI may play against the currency pair.

Resistance awaits at the recent peak of 1.2590. It is followed by 1.2680, which was a high point in mid-June. The next line to watch is 1.2730.

Looking down, support is at 1.2525, a temporary peak from early in the month. It if followed by 1.2460, the weekly low, and then by 1.24, a round level that also held GBP/USD down last week.

2) EUR/USD: Ready To Resume it’s Rise? Euro Showing Resilience alongside Uptrend Support

Is the downside correction over? The common currency has been giving some ground as stocks retreated and the dollar clawed back some of its losses – but that seems limited.

After the “weekend effect” pushed US COIVD-19 statistics lower in reports published on Monday, figures coming out of various US states painted a darker picture. Infections topped 10,000 in both California and Texas, with the latter struggling to manage its overwhelmed hospitals. While cases in Florida remained below 10K, the positive test rate is at a worrying 16%.

President Donald Trump continues playing down the disease and wants schools to reopen in September. The US formally announced it will be leaving the World Health Organization (WHO) in 2021, cutting the multilateral institution from its largest funder.

The White House is also mulling destabilizing the Hong Kong Dollar peg – which has been maintained since 1983. Several policymakers wish to punish China for tightening its grip on the city-state. However, breaking the peg is a considerable undertaking – around $5 trillion are parked in HK. Moreover, the Hong Kong Monetary Authority (HKMA) has the backing of China’s central bank if it needs support with swap lines.

USD/HKD is trading at the lower bound of the peg – showing the strength of the local currency. Investors seem to shrug off the threats, but the president may feel urged to act ahead of the elections. Trump continues trailing rival Joe Biden by around nine points.

The old continent continues keeping the lid on the virus, with outbreaks limited to small localities – for now. Investors are already eyeing next week’s events. Christine Lagarde, President of the European Central Bank, has hinted that her institution has done enough and will leave its policy unchanged. The ECB boosted its bond-buying scheme by €600 billion in June.

The focus shifts to the EU Summit – the first post-pandemic face-to-face encounter – with the proposed EU Fund topping the agenda. The “Frugal Four” – Austria, the Netherlands, Denmark, and Sweden – have reservations about the plan. The European Commission’s program, backed by Germany and France, includes grants worth €500 billion, funded mutually. The four rich countries prefer loans. Investors expect a compromise, but further feet-dragging may weigh on the common currency.

Euro/dollar is trading above the long-term support line running from late May, as well as alongside a steeper one that was formed in early July when it bottomed out at 1.1185. Moreover, momentum on the four-hour chart remains to the upside and EUR/USD is holding above the 50, 100, and 200 Simple Moving Averages.

Resistance is at 1.13, which capped the currency pair last week. It is followed by the critical 1.1350 level – a double top. Further up, 1.1385 and 1.1410 await EUR/USD.

3) US Dollar Wavers as US Coronavirus Death Rate Jumps

The Australian dollar is little changed today as the number of new infections in the country rise. Victoria state confirmed about 134 cases and there are more cases in Melbourne. As a result, the government has announced new measures to contain the disease. For example, it has formed three rings of containment in Melbourne and limited foreign arrivals from abroad. The new information comes a day after the RBA left interest rate unchanged. It also came a week after the country released upbeat retail sales and manufacturing PMI data.

The US dollar index wavered during the Asian session as traders continued to monitor the rising number of new coronavirus cases in the United States. Data from Johns Hopkins confirmed more than 50,000 new infections yesterday. Some states, including Texas, Florida, and California confirmed more than 10,000 in a single day. That was the biggest one-day jump since June 3. Worse, data showed that death rate from the country rose to the highest level in weeks.

The price of crude oil was little changed today as traders reflected on the inventories data from the United States. The numbers showed that oil inventories rose by 2 million barrels in the previous week. That was a surprising number considering most analysts were expecting the numbers to drop by more than 3.7 million barrels. Last week, data from API showed that inventories dropped by more than 8.15 million barrels. We will receive data from the EIA later today. Analysts expect the numbers to show that inventories fell by more than 3.1 million barrels.

The EUR/USD pair was little changed during the Asian session. It is trading at 1.1277, which is slightly above yesterday’s low of 1.1257. On the four-hour chart, the price is slightly above the 50-day and 100-day exponential moving averages. The price is slightly above the 23.6% Fibonacci retracement level. It is also slightly above the ascending trend line shown in white. The pair is likely to remain at the current range because there is no major economic data today.

The GBP/USD pair rose to an intraday high of 1.2593. On the four-hour chart, the price is at the highest it has been since June 18. It is above the 50-day and 100-day exponential moving average while the RSI has been moving upwards. Also, the price is above the dots of the Parabolic SAR indicator. Therefore, the price may continue rising as bulls attempt to move above 1.2600.

The AUD/USD pair is trading at 0.6940, which is slightly below this week’s high of 0.7000. On the four-hour chart, the price is above the 50-day and 100-day exponential moving average while the Parabolic SAR is above the price. The signal and main line of the MACD have made a bearish crossover. Still, with no major economic data coming out today, the pair may remain at the current range.