USD Continues To Retreat As Markets Eye Recovery And Protests Continue

Jun 02 20, 10:52 GMT

The USD continued to weaken against a number of its counterparts yesterday, as investors tend to continue to eye a possible economic recovery in the US and other places in the world. However, it should be mentioned that manufacturing activity improved in the US during May, yet still marked a contraction as per the manufacturing sector’s PMI readings released yesterday. The indicators’ readings albeit a bit lower than expected, still tended to imply that the worst may now be over, as the US economy is being reactivated. In the US-Sino front, China reportedly halted purchases of US soybeans and pork from state owned businesses, providing some worries temporarily about a threat to the phase 1 deal between the US and China, yet interestingly enough the market’s sentiment seemed to continue to be characterized by optimism. Nevertheless, we maintain the view that the risks for further tensions in the relationships of the two countries remain elevated. In the inner political stage risks are also elevated, as protests continue to rock the US and cause mayhem. It should be noted that the US President threatened to use the deployment of heavily armed soldiers as well as law enforcement officers in order to crush the unrest and the ongoing protests. If the market sentiment continues to improve, the USD could weaken further in the coming sessions, while commodity currencies may strengthen.

USD/CAD continued to drop and broke the 1.3620 (R1) support line, now turned to resistance. We maintain a bearish outlook for the pair as long as it remains below the downward trendline incepted, since the 22nd of May. Please note that the RSI indicator below our 4 hour chart is at the reading of 30, underscoring the dominance of the bears, yet at the same time may imply that the pair’s short position may be overcrowded. Should the pair remain under the selling interest of the market, we could see it breaking the 1.3520 (S1) support line and aim for the 1.3425 (S2) support level. Should the pair reverse course and its long positions be favored by the market, we could see it breaking the 1.3620 (R1) line and aim for the 1.3755 (R2) level.

RBA’s remains on hold, yet the Aussie gets little support

The Aussie maintained its ascent against the USD and RBA’s interest rate decision tended to provide little support at the moment of the release. The bank, as was widely expected remained on hold at +0.25%, hence market attention turned to the accompanying statement for further clues. In its statement the bank said that it will not raise the cash rate until progress is made towards full employment and the bank’s inflation target. Also, the bank’s accommodative approach is to be maintained for as long as it is required and the bank is prepared to scale up bond purchases if necessary. RBA also noted that the economy is experiencing a severe downturn and household spending weakened very considerably. We see a slight optimism in the statement as the bank stated that it is possible that the depth of the downturn will be less than earlier expected. AUD/USD continued its ascent breaking the 0.6750 (S1) resistance line, now turned to support. We maintain a bullish outlook for the pair as long as it remains above the upward trendline incepted since the 15th of May. If the bulls maintain control, AUD/USD could break the 0.6840 (R1) resistance line and aim for the 0.6940 (R2) resistance level. If the bears prevail, the pair could break the 0.6750 (S1) support line and aim for the 0.6650 (S2) support level.

Other economic highlights today and early tomorrow

Today during the early European session, we get UK’s nationwide house prices for May, while later on we get New Zealand’s milk auctions figure. Just before the Wednesday’s Asian session starts, we get thee US API weekly crude oil inventories figure for the week ended 29th of May. During tomorrow’s Asian session, we get Japan’s services PMI for May, Australia’s GDP rate for Q1 and China’s Caixin Services PMI for May. As for speakers please note that RBA’s Assistant Governor Bullock is scheduled to speak.

USD/CAD 4 Hour Chart