FX Update June 22 – A wobble to start the week


The risk-sensitive currencies rebounded from early losses, as stocks in the Asia-Pacific region lifted out of early losses for the most part, while S&P 500 futures managed gains of 0.5%, wiping out the decline seen during the regular Wall Street session on Friday.

AUDUSD printed a one-week low at 0.6085 before rebounding to an intraday high of 0.6976. The peak marked a gain over 0.5% on Friday’s closing level, though the Aussie still remained shy of its Friday high at 0.6913. The Kiwi Dollar rebounded out of a three-week low. USDCAD pegged a one-week high at 1.3630 before ebbing back under 1.3500. Front-month WTI crude prices have been consolidating recent gains so far today, holding below the 16-week high that was seen on Friday at $40.49. The narrow trade-weighted USDIndex (DXY) saw a three-week high at 97.74 at the Asia-Pacific open before turning lower, to a 97.46 low. EURUSD concurrently lifted out of a 19-day low at 1.1169. Sterling traded moderately firmer against the Dollar and its other main peers, which follows a two-week phase of underperformance. USDJPY held a 20-pip range in the upper 106.00s.

The early wobble in markets at the open today came with data showing a further acceleration in coronavirus infections in some US states, pushing total confirmed US cases up to a rate of +1.6% versus the +1.2% seven-day average. Germany’s coronavirus r-rate also increased to 2.88, though the Robert Koch Institute downplayed this, arguing that small localized outbreaks in the context of low overall case numbers have exaggerated the headline statistic, which helped risk sentiment improve in global markets. Bundesbank head Weidmann also said over the weekend that he thinks the worst of the economic trough in Germany has passed, while the Italian government is reported to be near to approving a bailout of Fiat Chrysler.

The UK government, meanwhile, is expected to ease coronavirus lockdown restrictions further tomorrow. Recent data out of the UK showed continued disinflation, with May CPI falling to a four-year low rate of just 0.5% y/y, and a solid rebound in retail sales data, which was a fully expected scenario after the collapse in sales during April, before the lockdown eased. The BoE left its policy repo interest rate unchanged at 0.1% after the June Monetary Policy Committee meeting last week, but expanded QE by GBP 100 bln while pledging a further expansion if needed, warning about the risks stemming from a second wave of infections both in the domestic economy and in reopening developed economies, and the ongoing virus spread across developing-world countries.

Although not mentioned by the central bank, concerns also remain on the EU-UK trade front, despite leaders having last week declared a new intensity in discussions. At issue is that the two sides look unlikely to be able to make a deep and comprehensive trade deal, and more likely an agreement comprising of limited arrangements, which will leave both sides worse off, or no deal at all, which would see the UK switch a large portion of its trade to less favourable WTO terms. The UK government has confirmed that it will be leaving its transitory membership of the single market at year-end, with or without a deal. The UK calendar this week is highlighted by the preliminary PMI surveys for June (Tuesday), which can be expected to show a further improvement from dismal levels on the continued social and economic reopening in the UK and globally. The headline preliminary composite PMI is expected to rise to 38.0 from May’s reading of 30.0. This would continue the rebound from April’s record low at 13.8, but still signal an economy deep in contraction.

Cable continued to move higher, back over 1.2400 and R1 to post a current high for the day at 1.2432. The Crossing EMA Strategy (H1) triggered short on Fridays decline, at 1.2412 and trended lower to close out at 1.2360, this morning  before triggering long on the break of the 20-period moving average at 1.2370. For details of this and many other strategies, please see our webinars here

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Stuart Cowell

Head Market Analyst

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