• Rates: July US eco data to show the impact from 2nd wave of infections?
    Washington-based Fed governor Brainard argued in favour in shifting monetary policy again from stabilization to accommodation. Another positive early COVID-19 drug trial boosts risk sentiment overnight. We don’t take the improvement for granted. July US eco data could again show the impact from fresh lockdown measures.
  • Currencies: Dollar nearing first important support
    The protracted USD downtrend simply continued yesterday, supported by an improving global sentiment throughout the day. For the TW dollar the key 95.71 support is coming on the radar. EUR/USD is testing the 1.1422 resistance. EUR/GBP extended its rebound and tested the 0.91 big figure.

The Sunrise Headlines

  • Wall Street shrugged off early weakness to end well in the green. The DJI (+2.13%) outperformed. Most Asian markets trade higher following promising results from a vaccine. China declines as tensions with the US over HK rise.
  • Biotech Moderna’s Covid-19 vaccine produced antibodies in all patients tested in an initial safety trial. On the downside however, more than half of those who received the middle of three doses showed mild to moderate side effects.
  • Germany’s Merkel said there are still differences among EU leaders regarding the recovery proposal after meeting with the Spanish PM but is prepared to compromise. Dutch PM Rutte remains doubtful it will happen though.
  • US president Trump ended Hong Kong’s special status with the US and signed an executive order that would sanction Chinese officials for cracking down on political dissent. China vowed to take countermeasures without elaborating.
  • The Bank of Japan held rates steady at -0.1% (policy rate) and 0% (10y yield target). It casted a gloomier growth picture, projecting a 4.7% contraction this fiscal year vs. the 3-5% range in April, assuming no second wave of infections.
  • OPEC+ may ask non-compliant members today for compensatory cuts in August and September while the rest of the cartel increases pumping. Doing so would ease the impact of the expected rollback of historical output curbs.
  • Today’s economic calendar contains US industrial production (June), NY Empire Manufacturing index (July) and the Fed’s Beige Book. The UK releases June inflation figures. OPEC+ meets today. Germany taps the bond market.

Currencies: Dollar Nearing First Important Support

USD nearing important support levels

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The (TW) dollar (DXY) continued the protracted downtrend yesterday that started at the end of June. Eco data were again of no big relevance with German ZEW sentiment missing expectations and US inflation printing to close to consensus. Equity sentiment was a bit mixed (Europe opened in red) but underlying resilience/intraday rebound later in the session provided a nihil obstat for a further USD decline. The TW dollar slipped to the 96.25 area, with the key June low (95.71) coming within reach. EUR/USD closed at the 1.14 big figure. The intraday trend in USD/JPY was again more indecisive with the pair closing at 107.24.

This morning, most Asian indices are trading in positive territory with China the exception. Equities are supported by positive headlines on a vaccine from Moderna. At the same time, tensions between the US and China are again mounting after president Trump ended the preferential status for Hong Kong. The yuan still trades slightly stronger near USD/CNY 7. The BoJ as expected left policy unchanged. It sees the economy contracting 4.7% in fiscal 2020 with a slow recovery later. USD/JPY is unmoved holding a tight range in the 107.25 area.

Today’s eco calendar contains the US Empire survey and June production data. Several Fed members are scheduled to speak and the Fed will publish its Beige Book preparing the June 29 policy meeting. The Empire manufacturing might paint a constructive picture on the recovery in the region. Of late, the dollar developed a gradual downtrend. The move was supported by a constructive risk sentiment and a further decline of LT US interest rates. US yields are nearing important support levels and so does the (TW) dollar. There is no obvious trigger to row against this trend, but a pause/slowdown might be on the cards. This also applies to EUR/USD. The pair recently was captured in buy-on-dips pattern. 1.1422 resistance is under test. A break toward the 1.1495 top probably needs help from a positive outcome of the EU summit later this week.

Sterling remained in the defensive yesterday. Short-term negative UK interest rates and disappointing activity data (May production/GDP) provided little ammunition to stop the GBP downtrend. EUR/GBP even briefly tested the 0.91 big figure. This morning, UK price data (CPI 0.6% Y/Y) printed slightly higher than expected. The EUR/GBP 0.8950/0.90 looks solid support, which we expect to hold. However, at current levels, quite some bad news is already be discounted for the UK currency.

TW dollar (DXY) nearing 95.71 support area


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