FX & market recap:
Relief that President Trump’s Friday afternoon press conference was all bark and no bite, combined with better than expected China Manufacturing PMI data sparked a “risk-on” rally overnight. However, caution ahead of central bank meeting’s and US employment data Friday, suggest the rally will not last the week.
Friday, Mr. Trump used Beijing’s attempt to quell unrest in Hong Kong, as an excuse to begin the process of stripping HK of its “special trade status.” He also said that the US would put sanctions on some PRC and HK officials. Fears that Mr. Trump would scrap the US/China Phase 1 trade deal proved unfounded, giving the green light to “risk-seeking” trades. China-bashing was a central theme in Trump’s 2016 election campaign, and it is evident that it remains a core platform for the 2020 campaign.
Over the weekend, traders eagerly sold US dollars as rioters burned US cities. The riots may slow the US recovery from the COVID-19 lockdown measures.
Canadian dollar highlights:
USD/CAD plunged with the broad US dollar weakness and the surge in WTI oil prices to $35.87. Prices bounced from their 1.3675 low to 1.3710, due to profit-taking and a dip in crude prices. Wednesday’s Bank of Canada meeting will have little impact on USD/CAD. Rates and policy will be unchanged, and there will not be a press conference, but there will be a change of Governors. Incumbent Stephen Poloz rides off into the sunset, while incoming Tiff Macklem takes his place at the head of the table.
EUR/USD cracked through resistance in the 1.1050-60 area on Friday and extended those gains to 1.1153 overnight. Thursday’s ECB policy meeting will be closely watched. Policymakers are expected to increase the size of the Pandemic Emergency Purchase Program (PEPP). Economists also expect that downgrades of ECB forecasts, which could give EUR/USD a negative bias.
British pound highlights:
GBP/USD retreated from its overnight peak of 1.2424, in part because the Manufacturing PMI data was weak, but also because of uncertainty around this week’s EU/UK trade talks. They are in their final round this week with the June 30 deadline, imposed by the EU for an “outline agreement” looming. Without that agreement, the EU say they would be unwilling to discuss a broader free trade pact.
Asia Pacific highlights:
AUD/USD and NZD/USD rallied following the Chinese PMI data and consolidated those gains in Europe.