USD Strengthens As Hopes For A Quick Rebound Dampen

Jun 25 20, 10:25 GMT

The USD strengthened against a number of its counterparts, as Tuesday’s hopes for a quick rebound of the economy in the US and worldwide dampened. Safe have inflows seemed to support the USD as US Coronavirus cases in various parts of the US surged with Florida, California and Texas setting new daily records for infections. According to media, health experts in the US warn that hospitals could soon be overwhelmed as cases surge in various states. In other parts of the world, Australia, Brazil and Germany tended to create the most worries about the outbreak. At the same time, it should be noted that the IMF projects a deeper global recession as the supply shock may have been larger than anticipated and social distancing measures seem to slow down demand according to Bloomberg. Also, uncertainty was increased as headlines surfaced that the US is considering placing tariffs on European and UK products. We could see safe haven flows continuing to guide the greenback, yet at the same time we intend to zoom in today’s US financial releases and especially the initial jobless claims figure which disappointed the markets last week. AUD/USD dropped yesterday, after failing to break the 0.6940 (R1) resistance line, aiming for the 0.6840 (S1) support line. We maintain our bias in favour of a sideways movement as the pair seems unable to break clearly any of the prementioned two boundaries. Should the pair remain under the selling interest of the market, we could see it breaking the 0.6840 (S1) line and aim for the 0.6750 (S2) level. Should the pair find fresh buying orders along its path, it could break the 0.6940 (R1) line and aim for the 0.7025 (R2) level.

GBP weakens as worries intensify

GBP weakened against the USD and the EUR yesterday continuing to display a risk on – risk off behaviour. UK’s PM Boris Johnson presented an easing of lockdown restrictions in England as pubs, restaurants and bars are to reopen on the 4th of July. However top medics signed an open letter warning of the risk of a second wave and that local flare ups are likely. Concerns whether Britain can get a deal on its future relationship with the European Union also weighed on the pound once again as doubts resurfaced. Local UK media tend to highlight EU’s top Brexit negotiator Barnier’s comments yesterday that EU demands are ‘not for sale’ ahead of trade talks. Especially the EU position regarding “level playing field rules” seems to be particularly hard. Also Michel Barnier stated that no progress can be made if the UK keeps backtracking from the political declaration about Brexit and that the ball is now in UK’s court. We expect the pound to continue to be influenced by the degree of risk on behaviour or cautiousness of the market in the coming days. GBP/USD dropped from the highs of the 1.2515 (R2) resistance line, breaking the 1.2435 (R1) support line, now turned to resistance, as its price action hovered below it. We tend to maintain a bearish outlook for the pound as its fundamentals seem adverse, yet some stabilisation during today’s Asian session seems to be present. Should the bears remain in control we could see cable breaking the 1.2375 (S1) line and aim for the 1.2300 (S2) barrier. On the other hand, should the bulls take over we could see GBP/USD breaking the 1.2435 (R1) line and aim for the 1.2515 (R2) hurdle.

Other economic highlights today and early tomorrow

Early in the European session, we get Germany’s GfK Consumer Sentiment for July while later on we get UK’s CBI distributive trades for June and the Turkish Central Bank’s interest rate decision for its 1-week repo rate. In the American session, we get the US durable goods orders growth rates for May, the final US GDP growth rate for Q1 and the weekly initial jobless claims figure. During Friday’s Asian session, we get for Japan, Tokyo’s CPI rates for June. Please note that Dallas Fed President Kaplan, ECB’s Mersch, Atlanta Fed President Bostic, Cleveland Fed President Mester and BoE’s Haldane are scheduled to speak. Also please note that the Bank of England is about to publish its Financial Policy Summary and Record.

AUD/USD 4 Hour Chart