Safe Haven Flows Support USD

Jul 19 21, 10:48 GMT

USD remained at rather high levels on Friday, as the spreading of the Covid 19 is globally threatening the recovery of the economy making market participants nervous and turning them to safe haven instruments such as the USD and JPY. The number of daily infections is on the rise and is alarming from northern American across Europe and Asia and as reported by Reuters the global seven-day average has reached new highs since May. The pound retreated on Friday against USD,EUR, JPY and CHF, as the UK is reaching “Freedom Day” dropping mandatory social distancing measures while at the same time Covid cases are on the rise in the UK due to the Delta variant, intensifying worries for a possible backlash. The Japanese currency remained rather stable against the USD, as safe haven flows tended to drive its bid higher while the Olympics are to start at the end of the week without spectators and lockdown measures intensify in the country of the rising sun. US stockmarkets dropped on Friday despite earnings season being on and US retail sales accelerating more than expected implying a rather smooth economic recovery, as a risk off sentiment swept through the market. The price of gold tended to stabilise during today’s Asian session, after a steep drop on Friday which was caused by a strengthening of the USD , while US yields seem to remain at rather low levels, polishing the shiny metal’s value. WTI prices seem to be dropping during today’s Asian session as ministers at the OPEC+ group are reported to have agreed to boost oil production levels from August onwards and the deal may weaken oil prices.

The USD index rose on Friday yet seems to find resistance at the 92.75 (R1) resistance line. We tend to maintain a bias for a sideways motion for the Dollar and for it to change in favour of a bullish outlook we would require a clear breaking of the 92.75 (R1) line. Please note that the RSI indicator below our 4-hour chart is above the reading of 50, implying a slight advantage of the bulls. Should the bulls take over we may see the index breaking the 92.75 (R1) resistance line and aim for the 93.45 (R2) level. If the bears take over the index’s direction, we may see it breaking the 92.30 (S1) support line and aim for the 91.75 (S2) level.

Cable seems about to abandon its sideways motion and on Friday moved lower aiming of the 1.3670 (S1) support line. We would require more consecutive lower peaks and troughs though, before switching our bias for a sideways motion. Please note that the RSI indicator below our 4-hour chart is near the reading of 30 reminding us of the presence of the bears for the pair. If the selling interest for cable is extended the pair could break the 1.3670 (S1) support line and aim for the 1.3525 (S2) level. If buyers are in control of the pair’s direction, we may see GBP/USD breaking the 1.3845 (R1) resistance line and aim for the 1.3990 (R2) level.

Other economic highlights today and the following Asian session:

Today we have a rather empty calendar, yet we highlight for JPY traders Japan’s CPI rates for June during tomorrow’s Asian session. On the monetary front, today BoE’s Haskel is scheduled to speak, while RBA releases the minutes of its latest meeting during tomorrow’s Asian session.

As for the rest of the week

On Tuesday, we get the US building permits and house starts for June. On Wednesday, we get from Japan the trade data for June and Australia’s preliminary retail sales growth rate for June. On Thursday, we get from France the business climate for July, UK‘s CBI trends for orders, ECB‘s interest rate decision, the US weekly initial jobless claims figure and Eurozone‘s preliminary consumer confidence for July. On Friday, we get Australia‘s France‘s ,UK‘s, Germany‘s, Eurozone‘s and US preliminary Markit PMI figures for July, as well as UK‘s retail sales for June and Canada‘s retail sales for May.

USD Index H4 Chart