The USD index (DXY) closed above 93.5 or its 50-day moving average for the first time since May. There was a flight to safety into the greenback and bonds from the sell-off in equities. Dow, S&P 500 and Nasdaq fell on Monday by -1.8%, -1.2% and -0.1% respectively. US 10Y treasury yield eased to 0.67% from 0.69% last Friday. Gold tested below USD1900/oz intraday for the first time since 12 August. Sentiment will remain weak if Fed Chairman Jerome Powell and US Treasury Secretary Steven Mnuchin, who will be testifying on the CARES Act before the US House Financial Services Committee tonight, fail to break the congressional deadlock to another round of fiscal stimulus.
EURUSD will be looking to extend its downside towards 1.15 if it succeeds in closing below 1.1770 or its 50-day moving average in the coming sessions. Euro Stoxx 50 closed below 3200 for the first time since 31 July except that this time, the index is below and not above its 100D MA. Speculators have started to trim their long EUR positions after the European Central Bank took aim at the EUR’s appreciation as a key hurdle to achieving its inflation goal. The outlook for the EU economy has been marred by new restrictions and lockdowns to limit the spread of the coronavirus.
GBPUSD is looking to break the floor of its 1.28-1.30 range. UK’s chief scientific officer warned that the number of coronavirus cases could increase exponentially to 50,000 per day in mid-October from around 4,000 presently. British Prime Minister Boris Johnson is expected to announce that pubs and restaurants across England would close at 10pm. Mr Johnson is no longer pushing hard for workers to return to office. The chancellor and other Tory members are resisting draconian measures that could hurt the UK economy which was hit hardest in the G7 by the pandemic. Given the circumstances, the prospect of a no-deal Brexit is not welcome. GBP will be pressured if the Commons vote for the Internal Market Bill today.
The spotlight in commodity currencies is on the CAD. The resistance level for USDCAD at 1.3270 has potential to become its new support level. CAD depreciated above 1.33 per USD, its weakest level since 12 August. Apart from broad USD strength, the CAD was pressured by lower crude oil prices i.e. WTI falling below USD40/bbl again. Canadian Prime Minister Justin Trudeau’s Throne Speech on Wednesday will be closely watched on whether the country is headed closer towards an election and how much the government will help the people during the pandemic. The parliamentary budget officer warned that fiscal spending could become unsustainable in 1-2 years. Fitch axed Canada’s triple-A debt rating by a notch to AA+ in June.
AUDUSD to extend its downside towards 0.70 if it breaks below its 0.72-0.74 range set since late August. Sentiment will become decidedly bearish should the All Ordinaries Index break below its psychological 6000 level. Australia’s economic recovery in 3Q is expected to remain lacklustre and lead the Treasury and the Reserve Bank of Australia to deliver more stimulus from October. NZDUSD is rightly in the lower half of its 0.66-0.68 range set since late August. The Reserve Bank of New Zealand may affirm its negative rate bias at tomorrow’s meeting.
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