29-Jun-2020

1) Dollar Doesn’t Profit From Risk-Off
2) GBP/USD: Not Out Of the Woods Yet, Focus Shifts To Brexit Talks
3) EUR/USD: Bulls Managed To Defend Double-Top Neckline Support

1) Dollar Doesn’t Profit From Risk-Off

Global trading was dominated by the rise in corona infections, in particular in the US on Friday. The worsening situation in the US caused an underperformance of US equities with US indices losing 2.5%/3%. Of late, the dollar often still outperformed even as developments/data from US were source of global uncertainty. This wasn’t the case on Friday. US yields declined sharply and the dollar reversed early gains. EUR/USD closed little changed at 1.1219. This was also the case for USD/JPY (close 107.22), but the intraday pattern was different.

This morning, Asian equity are also trading in risk-off modus. China slightly outperforms. This weekend, China May industrial profits rebound to 6% Y/Y, suggesting a further rebound in the economy. Moves in the major FX cross rates mostly are modest, but the USD still doesn’t profit from the risk-off. The TW dollar (DXY) is trading near 97.25. EUR/USD is gaining modest ground (1.1250). USD/JPY is little changed (107.15 area). The Aussie dollar remains well bid (0.6880 area) even as there is a rise in infections in some region of the country, too.

Today, the eco calendar is moderately interesting. German inflation data and the EU confidence data will be published. Of late, EMU data were not that bad. Solid EC confidence data might be (slightly) euro supportive. Headlines on the spreading of the corona virus and its impact on the reopening in the (US) economy will dominate global trading. It’s becoming less evident for the dollar to profit from corona-related uncertainty as the reopening of the US economy might be slowed. The USD is also losing further interest rate support. Last week, EUR/USD corrected modestly lower, but the 1.1160 support area was left intact. We expect this support to hold and look for the EUR/USD cross rate to start some bottoming out process. EUR/USD 1.1349 is first topside resistance.

EUR/GBP initially traded rather stable in the mid 0.90 area, but further deterioration in global sentiment finally caused the pair to close the week near the 0.91 area. During the weekend, PM Johnson announced a plan to rebuild schools in coming year, aiming to support the post-corona economic rebound. For now, this promise doesn’t help sterling much. Sentiment on sterling remains fragile and EUR/GBP shows tentative signs of a further upside break. We stay cautious on sterling.

2) GBP/USD: Not Out Of the Woods Yet, Focus Shifts To Brexit Talks

The GBP/USD pair came under some fresh selling pressure and dived to fresh monthly lows on Friday. The British pound remained depressed in the wake of this week’s report that the US is considering to impose tariffs on $3.1 billion of imports from the United Kingdom and the EU. This comes amid persistent Brexit-related uncertainties and further took its toll on the sterling. On the other hand, the US dollar failed to capitalize on its gains recorded over the past two trading sessions and remained on the defensive following the release of rather unimpressive US macro data – Personal Income/Spending data, Core PCE Price Index and revised Michigan Consumer Sentiment Index for June. A subdued USD demand, however, did little to impress bullish traders or ease the intraday bearish pressure surrounding the major.

The greenback continued with its struggle to attract any meaningful safe-haven flows despite growing worries about a surge in new coronavirus cases globally. This, in turn, assisted the pair to catch some fresh bids on the first day of a new trading week. The pair recovered a part of Friday’s negative move and was last seen trading around the 1.2375 region. The market focus now shifts to the resumption of the post-Brexit UK-EU trade deal negotiations. The incoming Brexit-related headline will play a key role in influencing the sentiment surrounding the British pound amid absent relevant market-moving economic releases from the UK. Later during the early North American session, the only scheduled release of Pending Home Sales data from the US might also contribute towards producing some trading opportunities.

Looking at the technical picture, the pair on Friday confirmed a break below the 61.8% Fibonacci level of the 102076-1.2813 positive move. This comes on the back of a descending trend-channel formation and points to a well-established short-term bearish trend. Hence, any subsequent positive move beyond the 1.2400 mark might still be seen as a selling opportunity. This, in turn, should cap the upside near 50% Fibo. level, around the 1.2440-45 region. The mentioned barrier coincides with the trend-channel resistance and should now act as a key pivotal point for short-term traders.

On the flip side, immediate support is pegged near the 1.2330 horizontal zone, below which the pair might turn vulnerable to break below the 1.2300 round-figure mark. The downward trajectory could further get extended towards intermediate support near mid-1.2200s before the pair eventually slips below the 1.2200 mark and aim to challenge the trend-channel support.

3) EUR/USD: Bulls Managed To Defend Double-Top Neckline Support

The EUR/USD pair lacked any firm directional bias on Friday and seesawed between tepid gains/minor losses, ending nearly unchanged for the day. The pair did get a minor intraday lift after the ECB President Christine Lagarde hinted that the region could have already past the lowest point of the coronavirus crisis. Lagarde also noted that the recovery is expected to be incomplete and a complicated matter. The uptick, however, lacked any strong follow-through amid growing worries about the second wave of coronavirus infections.

Meanwhile, the market concerns did little to assist the safe-haven US dollar to capitalize on its gains recorded over the past two trading sessions. The greenback remained depressed following the release of unimpressive US macro data – Personal Income/Spending data, Core PCE Price Index and revised Michigan Consumer Sentiment Index for June. A subdued USD demand helped limit any deeper losses, rather assisted the pair to once again show some resilience below the 1.1200 round-figure mark and regain some positive traction on Monday.

The USD continued with its struggle to attract any meaningful buying interest despite fading optimism about a sharp V-shaped global economic recovery. This, in turn, suggests that any USD strength in the wake of renewed market uncertainty might now be seen as a selling opportunity. The pair was last seen hovering around mid-1.1200s and in the absence of any major market-moving economic releases from the Eurozone, remains at the mercy of the USD price dynamics. From the US, the only scheduled release of Pending Home Sales data might provide some trading impetus later during the early North American session.

From a technical perspective, the pair, so far, has managed to defend the neckline support of a bearish double-top formation on short-term charts. This makes it prudent to wait for a sustained break through the mentioned support, around the 1.1200-1.1190 region, before placing any aggressive bearish bets. Some follow-through weakness below the 1.1175-70 support zone will confirm a near-term bearish breakdown and set the stage for a further near-term depreciating move. The pair might then accelerate the fall towards the 1.1100 round-figure mark before eventually dropping to test the very important 200-day SMA, currently near the 1.1030 region.

On the flip side, any subsequent positive move beyond mid-1.1200s might now assist the pair to aim back to reclaim the 1.1300 mark. Bulls might then target to retest the 1.1350 supply zone, which if cleared decisively might negate any near-term bearish bias and trigger a fresh leg up. A convincing breakthrough should pave the way for a move beyond the 1.1400 round-figure mark, back towards testing YTD tops, just ahead of the key 1.1500 psychological mark.