USD Keeps Recent Gains As Worries Persist

Jun 26 20, 09:10 GMT

The greenback kept its gains intact against some of its counterparts in a rather slow market yesterday, as worries about a second coronavirus wave persisted. Headlines were characteristic of the situation, as the Governor of Texas reportedly temporarily halted the state’s reopening yesterday as COVID 19 infections and hospitalizations rose substantially. It should be noted that cases rose by 39,818 in the US yesterday, setting a new one-day record in the increase of cases and as a number of states reported new record numbers. Government sources tend to note that the COVID 19 virus may have infected 10 times more Americans than initially estimated reaching 20 million, while a substantial number remains asymptomatic, yet continues to spread the virus. Financial releases yesterday tended to fuel worries for the reopening of the US economy as the initial jobless claims figure remained for a second week at high levels, increasing doubts about a “V” shaped recovery of the US economy. Also, US stock-market gains seemed to remain in check yesterday, as COVID 19 worries intensified and the Fed announced that it will cap big bank dividend payments and bar share repurchases until at least the fourth quarter after finding lenders faced significant capital losses, as per Reuters. We maintain the view that the USD is to continue to be driven by safe haven flows, yet today’s financial releases could play also some role in its direction. EUR/USD during the European session, dropped breaking the 1.1230 (R1) support line, now turned to resistance and steadied, hovering below it for the rest of the day. As the pair broke the downward trendline incepted since the 24th of June, we switch our bearish outlook for EUR/USD in favour of a sideways motion for the time being. Should the pair come under the selling interest of the market once again, we could see it aiming if not breaking the 1.1170 (S1) support line as it continues its journey south. If the pair finds fresh buying orders along its path, we could see it breaking the 1.1230 (R1) line and aim for the 1.1285 (R2) level.

Canada’s economy downgraded by Fitch

The CAD steadied against the USD yesterday as it reached a 10 day low despite oil prices showing a slight upward movement. Oil prices tended to rise slightly, as expectations for a surge in demand were elevated, despite US oil inventories being on the rise once again. Loonie buyers may have had second thoughts as the Canadian economy was downgraded by the Fitch rating agency, losing its AAA grading as the financial situation deteriorates. In its reasoning, the credit rating agency stated that it expects debt to rise substantially over its GDP as the Canadian government mounts its response efforts. Also, the increase of cases south of the Canadian border tends to create worries for a possible adverse effect on the rebound of the Canadian economy. It’s characteristic how the premier of Ontario asked for the US-Canadian border to remain closed, while Quebec reopens bars and restaurants. We expect the Loonie to remain mainly oil driven for the time being and any uplift of oil prices could have beneficial effects on the CAD. USD/CAD maintained a rather tight sideways motion just above the 1.3620 (S1) support line and we expect this trend to continue at least temporarily. Should the bulls gain control over the pair, we could see it breaking the 1.3730 (R1) and aim for higher grounds, while if the bears take over we could see USD/CAD breaking the 1.3620 (S1) support line and aim for the 1.3520 (S2) support level which stopped the pair’s descent repeatedly on the 16th, 17th, 18th and the 23rd of the month.

Other economic highlights today and early tomorrow

In the European session, ECB President Christine Lagarde and EU Commission President von der Leyen are scheduled to speak. In the American session from the US we get the consumption rate for May, the Core PCE price index for May, the final Un. Michigan Consumer Sentiment for June and the Baker Hughes oil rig count. During Monday’s Asian session please note Japan’s retail sales growth rate for May.

EUR/USD 4 Hour Chart