USD Continues To Weaken As Market Eyes Recovery After PMI Releases

Jun 24 20, 10:17 GMT

The USD continued to weaken against a number of its counterparts yesterday as the market’s hopes for a quick economic recovery may have been fuelled by the rather favourable preliminary PMI releases for June in various parts of the world yesterday. PMIs affecting the common currency from France, Germany and the Eurozone, tended to systematically outperform market expectations. It should be noted that also the UK and the US readings outperformed market expectations further fuelling hopes for an economic recovery. The hopes fuelled by the readings tended to override worries of the market for a resurgence of COVID 19 cases in the US. It was characteristic how Texas, Arizona and Nevada reported new records for their coronavirus outbreaks intensifying worries. We expect market sentiment to be the main driver behind the USD today, especially given the absence of high impact financial releases from the US and should the market continue to be risk on oriented, we could see USD weakening further. EUR/USD continued to rise yesterday, breaking the 1.1285 (S1) resistance line, now turned to support, while also touched the 1.1345 (R1) resistance line, yet failed to present further advancement. As the pair finally decided to continue the upward trendline incepted since the 22nd of June we switch our sideways bias in favour of a bullish movement. At the same time though we tend to issue a strong warning that the pair’s price action seems to have stabilised over the past 12 hours and is currently threatening the upward trendline. Should the pair clearly break it, we would renew our sideways bias. Should the pair find fresh buying orders along its path, we could see it breaking the 1.1345 (R1) line and aim for the 1.1420 (R2) level. Should the pair come under the selling interest of the market, we could see it breaking the 1.1285 (S1) line and aim for the 1.1230 (S2) level.

Kiwi falls as RBNZ remains on hold

Today during the Asian session , RBNZ remained on hold at +0.25% as was widely expected and kept its QE program also unchanged at NZ$60 billion, yet the Kiwi dropped around 50 pips against the USD upon the release and in the following minutes. In its accompanying statement the bank mentioned that New Zealand has contained the spread of COVID-19 locally for now, enabling a relaxation of social restrictions and an earlier resumption of domestic economic activity than the bank had expected. Also, the bank praised the government’s fiscal stimulus program as it was slightly larger than what RBNZ had expected. Despite the above providing confidence, the bank noted that economic challenges remain and also the balance of economic risks tends to remain to the downside and that it is prepared to provide additional stimulus as necessary. However, we would also underline that RBNZ noted that the exchange rate has appreciated placing additional pressure on export earnings. We could see the Kiwi dropping further especially after the warning about the exchange rate appreciation, yet general market sentiment could provide further support for NZD should the risk on approach by the markets continue. NZD/USD failed to clearly break the 0.6110 (R1) resistance line and after RBNZ’s rate decision dropped. Hence, we tend to maintain our bias for a sideways movement between (R1) and (S1). Should the bulls be in control we would expect the pair to break the 0.6110 (R1) line and aim for the 0.6180 (R2) barrier. On the other hand, should the bears take over we could see NZD/USD breaking the 0.6000 (S1) line and aim for the 0.5925 (S2) barrier.

Other economic highlights today and early tomorrow

Today during the European session, we get Germany’s Ifo Business Climate for June, while later on we get CNB’s interest rate decision and from the US the EIA crude oil inventories figure. During tomorrow’s Asian session we get New Zealand’s trade data for May. As for speakers please note that ECB’s Philip Lane, EU Commission President Ursula von der Leyen, Chicago Fed President Evans and St Louis Fed President Bullard are on the schedule today.

EUR/USD 4 Hour Chart