24-Jun-2020

1) GBP/USD: Bulls Take A Brief Pause Near 38.2% Fibo. Hurdle
2) New Zealand Dollar Falls after Dovish RBNZ Decision
3) EUR/USD Extends Rebound after Better EMU PMI

1) GBP/USD: Bulls Take A Brief Pause Near 38.2% Fibo. Hurdle

A combination of supporting factors assisted the GBP/USD pair to gain some follow-through traction on Tuesday and build on the previous day’s goodish recovery move from three-week lows. The US dollar came under some fresh selling pressure after White House trade advisor Peter Navarro clarified that his comments on US-China trade agreement had been taken wildly out of context. The US President Donald Trump provided further assurance and tweeted that the phase-one trade deal with China was still intact. This, in turn, led to a positive turnaround in the equity markets and undermined the USD’s perceived safe-haven demand.

On the other hand, the British pound was supported by upbeat UK macro data, which showed that manufacturing sector activity moved back into the expansion territory in June. In fact, the flash version of the UK Manufacturing PMI jumped to 50.1 during the reported month from May’s final reading of 40.7. Adding to this, the gauge for the UK services sector also surpassed consensus estimates and climbed to 47 in June from 29 previous. This, along with stronger-than-expected PMI reports from the Eurozone revived hopes for a sharp V-shaped global economic recovery and remained supportive of the upbeat market mood.

Meanwhile, the sterling got an additional boost after the UK Prime Minister Boris Johnson announced relaxing of lockdown measures in England. The new rules will be applicable from 4 July and will allow tourism, hospitality, cinemas, galleries, libraries in England to reopen for business. The strong intraday positive move took along some short-term trading stops near the key 1.2500 psychological mark, which coincided with a short-term descending trend-line resistance extending from three-month tops set on June 10. The pair subsequently climbed to weekly tops during the Asian session on Wednesday, albeit bulls took a brief pause near mid-1.2500s.

In the absence of any major market-moving economic releases, either from the UK or the US, the broader risk sentiment might continue to influence the USD price dynamics and produce some meaningful trading opportunities around the major.

From a technical perspective, the pair stalled its positive move, rather witnessed a modest pullback from the 38.2% Fibonacci level of the 102076-1.2813 led up. The mentioned hurdle, around mid-1.2500s, should now act as a key pivotal point for short-term traders. A convincing breakthrough would set the stage for a move beyond the 1.2600 round-figure mark, towards testing 23.6% Fibo. level around the 1.2635-40 region. Some follow-through strength will negate any near-term bearish bias and pave the way for a further near-term appreciating move for the pair.

On the flip side, the mentioned trend-line resistance breakpoint, around the 1.2500 mark, now seems to protect the immediate downside. Any subsequent fall might still be seen as a buying opportunity, which should help limit the slide near the 1.2440 region (50% Fibo. level). That said, failure to defend the mentioned support levels might turn the pair vulnerable to break below the 1.2400 mark and head towards challenging weekly lows, around the 1.2335 region. The latter coincides with 61.8% Fibo. support region, which if broken decisively might be seen as a fresh trigger for bearish traders.

2) New Zealand Dollar Falls after Dovish RBNZ Decision

The New Zealand dollar declined after the Reserve Bank of New Zealand (RBNZ) delivered its interest rate decision. As was expected, the bank left interest rates unchanged at a record low of 0.25% and left its N$60 billion QE target unchanged. In the statement, the bank said that it was ready to do more to support the economy which is in recovery mode. It still warned that the continued border closure was exacerbating the negative impact of the virus outbreak. The rate decision came a week after the Bank of England added £100 billion to its QE program.

Global stocks rallied in overnight trading as investors remained optimistic about economic recovery. The latest manufacturing and services PMI numbers helped make the case of a V-shaped recovery. Yesterday, preliminary data by Markit showed that business activity was returning to normal in Europe and the US. As a result, stocks, gold, and crude oil rose. In the United States, the Nasdaq reached an all-time high while the Dow Jones and S&P500 rose by 0.50%. In Asia, the Shanghai and A50 rose by more than 0.10%.

The Japanese yen gained against the US dollar even after data from Japan disappointed. Yesterday, data from Markit showed that the manufacturing PMI was contracting. Other data today showed that the corporate services index remained unchanged at 0.8% in May. We will receive the leading index, which is a number that aggregates other economic numbers. Elsewhere, we will get manufacturing and consumer confidence data from Sweden, Capacity utilization from Turkey, and inflation data from South Africa. We will also receive the house price index numbers from the United States and crude oil inventories.

3) EUR/USD Extends Rebound after Better EMU PMI

After a ‘Navarro-related’ dip (comments that the China trade deal was over, later corrected by president Trump), EUR/USD turned north again, illustrating the current buy-on-dip bias. EMU PMI’s printing stronger than expected and a continuation of the global risk rally weighed on the USD and triggered a test of the 1.1350 area. The move slowed later as did US stock markets. Still EUR/USD closed at 1.1308 (from 1.1261 on Monday). USD/JPY developed a remarkably trading pattern. The pair jumped north of 107 after president Trump corrected the Navarro comments, but later followed the (‘risk-on’) correction of the dollar. The pair broke the bottom a ST consolidation pattern, closing at 106.52.

This morning, Asian markets show no clear trend as WS closed off the intraday highs. Investors still have to balance a further rise in corona infections (especially in the US) against the hope on a further reopening of the economy and ongoing monetary and fiscal stimulus. Still the USD remains in the defensive (DXY at 96.65). The Reserve Bank of New Zealand kept its policy rate unchanged at 0.25%. The bank still warns on downside risks even as the economy is recovering faster than expected. NZD /USD declined from the 0.6520 area to trade near 0.6465. EUR/USD is holding north the 1.13 level (1.1315 area). USD/.JPY gains marginally.

There are few eco data in the US today. German Ifo business confidence is expected to improve from 79.5 to 85.0. A positive surprise is possible even as the German PMI lagged the rest of Europe. A combination of resilient global equities, uncertainty on the spreading of the corona virus in the US and constructive headlines on Europe weighs on the dollar and is putting a ‘solid’ floor for the euro. Earlier this month, EUR/USD fell prey to profit taking, but first important support in the 1.1160 area survived.

We expect that area to hold and gradually look for this week’s bottoming/rebound. 1.1350 intermediate resistance was tested yesterday. 1.1422 (June top) is next topside reference on the technical charts, ahead of the 1.1495 March top.

Sterling showed a roller-coaster ride yesterday. Sterling initially remained under pressure, despite a positive global risk sentiment and the UK preparing to ease the lockdown. The UK PMI (composite 47.6) were also materially better than expected. Even so, EUR/GBP filled bids in the 0.9075/80 area, just to reversed the rise late in the session. There are no eco data in the UK. We keep a cautious bias on sterling. We assume a quick/sustained turn below 0.90/0.8950 unlikely ST.