USD Strengthens As Worries For Pandemic Grow

Jun 19 20, 09:16 GMT

The USD strengthened across the board yesterday, as worries about a second wave of the pandemic grew in the US. The intensified worries created safe haven inflows for the greenback which gained little against other safe haven currencies such as CHF, JPY. It should be noted that financial releases tended to provide mixed messages as the Philly Fed Business Index rose substantially, escaping the negative territory and showed an increase of economic activity in the wider Philly area. Yet on the other hand, the initial jobless claims figure remained rather unchanged at the 1.5 million area, creating worries for a slowing of the bottoming out of the US employment market. At the same time and as per media, US President Trump renewed his threats against China which could intensify market worries about a slowing of the recovery of the global economy. The threats came after US diplomats concluded a round of negotiations with Chinese officials and multiple points of friction seem to be reported. We expect the tensions to escalate further in the next couple of weeks, as the issue is being perplexed, no solution seems in sight and currently seems to be high on the agenda of the November US Presidential elections. Given the lack of high impact US financial releases, we expect that should market worries intensify further, we could see the USD gaining further on safe haven inflows. EUR/USD continued its descent yesterday, breaking the 1.1230 (R1) support line, now turned to resistance. We maintain a bearish outlook for the pair and for it to change we would require a clear breaking of the downward trendline incepted since the 16th of June. Should the bears actually maintain control over the pair, we could see it breaking the 1.1180 (S1) line and aim for the 1.1120 (S2) level. If the bulls take over, we could see EUR/USD breaking the prementioned trendline, the 1.1230 (R1) line and aim for the 1.1285 (R2) level.

BoE expands QE program yet fails to impress

GBP weakened against the USD as well as the EUR yesterday, as BoE’s interest rate decision maintained rates unchanged at +0.10% and expanded its QE program by £100 billion, yet seemed to fail to impress the markets. As per Reuters, analysts expect the pace at which the BoE’s asset purchases will take place over the coming months to materially slow and if so that could mean less QE support for the UK economy from the bank. It should be noted that the bank’s chief strategist Haldane, dissented and voted against the expansion, a move that highlighted the relatively hawkish stance. At the same time the bank seems to note that the economy may be picking up pace somewhat faster than expected boosting a possible recovery yet worries tend to continue for the employment market. We expect pound traders to eye today’s UK financial releases, yet Brexit concerns tend to continue to weigh on the pound. GBP/USD tumbled yesterday, breaking consecutively the 1.2515 (R2) and the 1.2435 (R1) support lines, now turned to resistance. As the pair clearly broke the lower boundary of its past sideways movement and seems to be guided by a bearish trendline incepted since the 16th of the month, we switch our bias favoring a sideways movement in favor of bearish outlook for the pair. It should be noted though that the pair’s sideways movement over yesterday’s American session, as well as today’s Asian session may test the prementioned trendline. If cable remains under the selling interest of the market, we could see it breaking the 1.2375 (S1) support line and aim for the 1.2300 (S2) support level. If GBP/USD’s long positions are favored by the market, we could see cable breaking the 1.2435 (R1) line and aim for the 1.2515 (R2) hurdle.

Other economic highlights today and early tomorrow

Today during the European session, we Germany’s PPI rates, as well as UK’s retail sales growth rates, both for May. In the American session, we get Canada’s retail sales growth rates for April, as well as the latest Baker Hughes US oil rig count figure. As for speakers we highlight among others the Fed’s Chair Jerome Powell later today, as well as RBA’s Governor Philip Lowe during Monday’s Asian session.

EUR/USD 4 Hour Chart