FX & market recap:
The FX week is ending with a whimper. The G-10 major currency pairs traded sideways and opened little changed from Thursday’s closing levels. FX direction continues to be dictated by global equity price movements. Central bank monetary policies, ballooning government deficits, ongoing COVID-19 second-wave outbreak concerns, and economic data play second fiddle to the Dow Jones Industrial Average and the S&P 500.
Wall Street closed flat, and Asia equity markets closed modestly higher. European stocks are higher as are S&P futures, which distracted traders from second wave coronavirus risks. Oil prices rose because Opec members, Iraq, and Kazakhstan promised to comply with agreed production cuts.
Canadian dollar highlights:
USD/CAD continues to test but fail to breach the May downtrend line which comes into play in the 1.3640-1.3650 area, which keeps the focus on support at 1.3340. April Retail Sales are expected to have dropped 15.1% m/m, which shouldn’t have any impact on the currency because it is due to COVID-19 measures, and it is stale. Firm oil prices will continue to act as a drag on USD/CAD gains.
EUR/USD traded in a tight 1.1200-20 range as the 27 leaders of EU met to debate the France/Germany €750 billion Recovery fund proposal. Countries like Spain and Italy want grants with few restrictions while the so-called “frugal four” (Sweden, Denmark, Austria, and the Netherlands) are not thrilled with the idea.
British pound highlights:
GBP/USD dropped from 1.2455 to 1.2378 on the back of weak economic data, and bearish technicals. Ongoing concerns about a no-trade deal exit from the EU at the end of the year is another negative. Traders ignored the news that May Retail Sales rose 12% m/m, well-above the April loss of 18%. Instead, the report that the UK debt exceeded GDP for the first time since 1963 weighed on prices.
Asia Pacific highlights:
USD/JPY remained on the defensive but traded in a narrow range. Coronavirus fears, North Korea and South Korea tensions were offset by an uptick in US Treasury yields, which are above this week low.