Commodity Currencies Weaken as Risk Rally Lost Momentum, Sterling Shrugs Brexit Deadlock

Australian Dollar weakens generally today and takes commodity currencies lower too. Risk-on markets have taken a halt this week, with some notably pullbacks in the US markets overnight. But Asian markets are just mixed. European majors are generally firmer for today, as led by Sterling. Brexit negotiations deadlock is so far generally ignored. Dollar is also mildly firmer but not important resistance is taken out so far.

Technically, a focus today is whether the pull back in commodity currencies will gather more momentum. In particular, 78.93 minor support in CAD/JPY and 74.32 minor support in AUD/JPY will be watched for sign of more near term decline. Meanwhile, 1.3624 minor resistance in USD/CAD and 0.6901 minor support in AUD/USD will also be watched for near term weakness in Canadian and Australian too.

In Europe, Nikkei closed down -0.78%. Hong Kong HSI is up 0.51%. China Shanghai SSE is up 1.86%. Singapore Strait Times is up 0.21%. Japan 10-year JGB yield is down -0.0163 at 0.023. Overnight, DOW dropped -1.51%. S&P 500 dropped -1.08%. NASDAQ dropped -0.86%. 10-year yield dropped -0.034 to 0.650.

ECB Lagarde: Pandemic measures demonstrated efficiency and effectiveness

ECB President Christine Lagarde said in an FT interview that the central bank’s pandemic measures have demonstrated “demonstrated their efficiency, their effectiveness.” For now, “we have done so much that we have quite a bit of time to assess” economic data “carefully.”

ECB will meet again next week. Lagarde’s messages suggested that the central bank will stand pat and adopt a wait-and-see attitude. ECB has nearly doubled the size of its pandemic purchase program to EUR 1.35T in June.

Clarida: Fed could do more with forward guidance and balance sheet

Fed Vice Chairman Richard Clarida told CNN yesterday that “we have a lot of accommodation in place. There is more that we can do. There is more that we will do if we need to”. He added that “additional forms of forward guidance that the Fed has used in the past and we would consider using in the future”. Additionally, “there’s more that we could do in terms of our balance sheet as needed.”

He also noted he increase in coronavirus cases in certain large states and Fed officials are following it closely. “The course of the economy is going to depend on the course of the virus.”

Fed Bostic: People are getting nervous again

Atlanta Fed President Raphael Bostic said “people are getting nervous again” on coronavirus development. “Business leaders are getting worried. Consumers are getting worried. There is a real sense that this might go on longer than we had hoped and we had expected and we had planned for.”

Bostic added that the next three to six weeks could be critical for the strength of the economic recovery. The rebound could plateau sooner and at a lower pace than expected.

Fed Mester: There’s some leveling off in economic recovery

Cleveland Fed President Loretta Mester said economic activity started to come back pretty well after reopening in May. However, “over the past week or so, there’s been some leveling off, and I think it’s probably due to the increase in cases not only in Ohio but across the country.”

“It’s going to be a long road back to where we were in February,” she said. “That’s why the Fed has been saying we’re here with our tools and we anticipate having very accommodative monetary policy for quite some time in the future, because it’s just going to take a long time to work through this.”

Japan Nishimura: No need to declare new state of emergency

Japan Economy Minister Yasutoshi Nishimura warned today that “untraceable” coronavirus cases among older people are “gradually rising”. He emphasized it’s “necessary to respond with a sense of crisis.” Yet, he reiterated that there is no need to declare a new state of emergency as the serious cases remained low, without strain on the medical system.

Released from Japan, banking lending rose 6.2% yoy in June, below expectation of 7.2% yoy. Current account surplus widened to JPY 0.82T in May, larger than expectation of JPY 0.71T.

Johnson: UK could leave EU on Australia term if no trade deal is reached

UK Prime Minister Boris Johnson told Germany Chancellor Angela Merkel that the country is prepared to leave the EU on the said term as Australia is a future trade deal couldn’t be reached. Johnson’s spokesman said, “on the future relationship, the prime minister underlined the UK’s commitment to working hard to find an early agreement out of the intensified talks process”. “He also noted that the UK equally would be ready to leave the transition period on Australia terms if an agreement could not in the end be reached.”

Formal Brexit negotiations will resume on Wednesday. Ahead of that, EU negotiator Michel Barnier said “The EU wants an agreement – and we are doing everything to succeed – but not at any price.”

Elsewhere

Swiss unemployment rate dropped to 3.3% in June, down from 3.4%, beat expectation of 3.6%. US calendar is relatively empty today and crude oil inventories is the only feature.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6911; (P) 0.6955; (R1) 0.6987; More…

Intraday bias in AUD/USD remains neutral and outlook is unchanged. We’d still expect corrective pattern from 0.7064 to extend with another falling leg before completion. On the downside, below 0.6901 minor support will turn bias to the downside for 0.6776 support. Break there will target 38.2% retracement of 0.5506 to 0.7064 at 0.6469. Nevertheless, sustained break of 0.7064 will resume whole rise from 0.5506 instead.

In the bigger picture, rebound from 0.5506 medium term bottom could be correcting whole long term down trend from 1.1079 (2011 high). Further rally would be seen to 55 month EMA (now at 0.7310). This will remain the preferred case as long as it stays above 55 week EMA (now at 0.6734). Sustained trading below 55 week EMA will turn focus back to 0.5506 low instead.

Economic Indicators Update