FX & market recap:
After selling off against most of G10 during North America’s session on Monday, USD is reversing and trading with a mixed tone vs G10 (though there is no specific catalyst behind the move). Yesterday the S&P 500 index rose the most in six weeks (3.15%) and is now back to the level in early March supported by news that Moderna Inc. has said it is closer to a COVID-19 vaccine. In other news, US President Trump has said that ‘if the WHO does not commit to major substantive improvements within the next 30 days, I will make my temporary freeze of US funding to the WHO permanent and reconsider our membership’.
Day ahead: In the US, Fed Chair Powell & Treasury Secretary Mnuchin will testify before the Senate Banking Committee. Ahead of the testimony, Powell’s prepared remarks were published on Monday, echoing his comments from the “60 Minutes” interview over the weekend (e.g. the remarks note, “We are committed to using our full range of tools to support the economy in this challenging time”). Mnuchin will also participate in a G7 call. There will be central bank speakers from the ECB, Norges Bank, & Fed.
Canadian dollar highlights:
Technically, with USD/CAD trading close to initial support at 1.3917 as of writing, the next support level to watch is the technical bottom at 1.3856. The double bottom remains as the pivot for our bullish technical view and a daily close below it would cause us to reassess our 1-3-month technical target of 1.4350. Resistance stands at 1.4118 and 1.4173. Prices will have to pierce 1.4173 to put the USD bulls back on a firmer footing.
Yesterday, German Chancellor Angela Merkel and French President Emmanuel Macron presented a joint position on a EUR 500bn EU (temporary) recovery fund aimed at revamping a coordinated, bold fiscal response to the COVID-19 pandemic among member states. Under the measures presented, the European Commission would borrow money on financial markets and distribute it to governments through the EU budget (i.e. in the form of grants rather than loans). The fund would provide "EU budgetary expenditure for the most affected sectors and regions on the basis of EU budget programs and in line with European priorities". With the good news now in the price, EUR/USD to settle around 1.09 today.
British pound highlights:
Consistent with our Q220 FX forecasts, the GBP outlook has worsened sharply of late on the back of market expectations of further BoE easing (including negative rates) as well as persistent fears about a no-trade-deal Brexit. The selling pressure should persist especially if the BoE acts more decisively by expanding its QE program more aggressively on 18 June and the EU and the UK fail to agree on extending the transition period at the EU summit on 18-19 June.
Asia Pacific highlights:
China’s national People’s Congress at the end of the week. China's 'Two Sessions' kicks off on Thursday with the People's Consultative Conference, followed by the National People's Congress getting underway Friday. The spat between the US and China continues to play out and the markets remain volatile and on edge given the massive implications of any overt trade war signals.