Trade ideas & Daily market report September 9th 2020
Euro-zone second-quarter GDP was revised to a decline of 11.8% from the previous estimate of 12.1% with a 14.7% annual decline. The Euro was unable to gain significant support during the day with further evidence of position adjustment ahead of Thursday’s ECB policy meeting. There was increased caution over holding long Euro positions given the possibility of verbal intervention to weaken the currency or a stronger signal on forward guidance from President Lagarde.
The US NFIB small-business confidence index increased slightly to 100.2 for August from 98.8 the previous month. There was an improvement in hiring plans for the month, although overall confidence in the economy was slightly weaker as coronavirus developments sapped support.
The IBD consumer confidence index declined to 45.0 for September from 46.8 previously, maintaining reservations over the outlook for spending and the economy.
The dollar gained an element of defensive support as equities moved lower. The Euro was also sapped to some extent by reservations over the Brexit trade talks situation which damaged confidence in European currencies.
Overall, the US dollar strengthened to a 4-week high and EUR/USD retreated to lows just below 1.1770 before finding some support. The pair traded around 1.1770 on Wednesday as the dollar held a firm tone in global markets.
USD/JPY was unable to make a challenge on the 106.50 area ahead of the New York open and edged lower in tandem with a retreat in US futures. Selling pressure in equities intensified at the New York open with a further slide in the Nasdaq index and the index closed 4% lower.
There were further concerns over US-China trade tensions and there was reduced speculation over an early coronavirus vaccine as nine companies pledged not to seek vaccine approval until they were shown to be safe. The slide in risk appetite triggered significant yen gains on the crosses and USD/JPY dipped below the 106.0 level.
There was fresh speculation over fiscal policy with the return of Congress following the Labor Day holiday. Senate majority leader McConnell stated that a vote on targeted relief would be held this week, but there was no evidence of wider consensus on a deal.
Risk appetite was undermined in Asia by AstraZeneca’s decision to halt the phase-3 vaccine trial due to an adverse reaction in one patient. US equity futures did recover some ground which provided some relief, but USD/JPY dipped to 105.80 as futures moved lower again. Chinese inflation data had little impact and EUR/JPY was held below 125.00.
Brexit trade considerations continued to have an important Sterling impact on Tuesday. According to Northern Ireland Secretary Lewis, the UK would break international law in a limited way with the Internal Market legislation. There were also media reports that the UK government legal department head had resigned amid opposition to proposed Withdrawal Agreement changes. The text of the Bill is due to be released on Wednesday with political reaction watched closely.
German minister Scholz commented that the latest UK signals do not raise hopes for a Brexit deal and France stated that a deal was unattainable if the UK opposes a level playing field. The formal talks resumed on Tuesday with rhetoric from all sides watched very carefully. A spokesman for Prime Minister stated that a deal was still achievable, although more realism is needed from the EU. Rhetoric will continue to be monitored closely in the short term.
There was renewed speculation over negative interest rates and UK 2-year yields declined to fresh record lows which undermined the UK currency.
The weaker tone in risk appetite was also an important negative market influence, especially as US equities moved sharply lower and Sterling volatilities hit a 12-week high. GBP/USD declined to near 1.3000 while Sterling lost ground on the major crosses.
Latest reports indicate that the government will tighten nationwide coronavirus restrictions to curb large gatherings, maintaining unease over an impact on the economic recovery. Sterling remained on the defensive on Wednesday with 5-week GBP/USD lows below 1.2950 while EUR/GBP strengthened to near 0.9100.
The Swiss franc remained under pressure early on Tuesday with EUR/CHF testing the 1.0850 area. The slide in equity markets and dip in risk appetite triggered a recovery with EUR/CHF dipping to the 1.0810 area while USD/CHF corrected from 4-week highs at 0.9200.
Equity markets lost ground which provided an element of franc protection and unease over Brexit trade developments also provided some Swiss support. EUR/CHF settled above 1.0800 on Wednesday with USD/CHF around 0.9180 as markets continued to monitor developments in risk appetite and equities.
AUD/USD + USD/CAD
During Tuesday, the Australian dollar was undermined by the weaker tone surrounding risk appetite and a firmer US currency. In this environment, AUD/USD retreated to lows near 0.7210 late in the US session.
A sharp recovery in Australian consumer confidence provided some relief, although global moves dominated. AUD/UD dipped to below 0.7200 before rallying to trade around 0.7225 as equity markets attempted to stabilise, but with selling interest on rallies.
The Canadian dollar was undermined by sharp losses in oil prices as well as weaker risk conditions with USD/CAD strengthening strongly to the 1.3230 area.
The Bank of Canada will announce its policy decision on Wednesday with rates expected to remain at 0.25%.
Risk appetite dominated on Wednesday with USD/CAD correcting only marginally from highs just above 1.3250.
The Norwegian krone was undermined by weaker risk appetite and the slide in oil prices. EUR/NOK strengthened to highs above 10.70 as equity markets declined sharply.
Krone selling pressure continued in Asia on Wednesday with EUR/NOK near 10.80 before a limited correction. USD/NOK strengthened sharply to 6-week highs around 9.15.
Swedish industrial production declined 8.0% in the year to July from 8.9% previously with the decline in new orders slowing to 6.4% from 13.1% after a 2.4% monthly gain.
The krona was broadly resilient in the face of weaker risk appetite, but EUR/SEK posted limited net gains to near 10.40. The krona edged weaker on Wednesday with EUR/SEK just above 10.40 and USD/SEK sharply higher near 8.85.
Euro-zone equities held steady in early trading, but lost traction during the day as US equities registered further significant losses. The decline in oil prices and reservations over Brexit developments also sapped support.
The German DAX index declined 1.0% with sharper losses of over 1.5% for the French and Spanish bourses.
Major UK equities again drew support from Sterling weakness during the day. Losses in oil prices and US losses were important negative factors, although FTSE 100 index losses were held to 0.1%.
After Monday’s holiday, US markets were subjected to further selling. There were reservations over the recovery prospects and losses were led by a further slide in the technology sector. The S&P 500 index declined 2.8% with a 4.1% slide for the Nasdaq index.
Asian markets also posted losses and, although a limited recovery in US futures provided an element of short-term relief, there was a renewed setback late in the session.
Japan’s Nikkei 225 index declined 1.0% amid a firm yen while the Australian ASX index declined 2.15%.
China’s Shanghai index traded 1.3% lower in late trading with a 1.1% retreat for Hong Kong’s Hang Seng index as sentiment remained negative.
Oil prices came under sharp selling pressure on Tuesday amid fears over global demand conditions. The Saudi Arabian price cuts announced on Monday continued to have a negative impact. Weaker equities and a firm dollar also eroded support.
WTI dipped sharply to 11-week lows near $36.10 p/b before finding some respite.
WTI traded around $36.40 p/b on Wednesday as risk appetite remained fragile with Brent below $40.0 p/b and close to $39.50.
Precious metals declined sharply in early US trading with a firm dollar eroding support while a slide in equity prices triggered long liquidation.
Gold declined to lows below $1,910 per ounce before a strong recovery to near $1,940 per ounce.
Silver also dipped sharply to lows below $26.00 per ounce before rallying strongly.
Gold retreated to around $1,925 per ounce on Wednesday as equities dipped again with silver close to $26.50 per ounce.
Cryptocurrencies again dipped during European trading on Tuesday with bitcoin sliding to below the $10,000 level and near $9925.
Coins were undermined by the weaker tone in risk appetite, especially with the dollar making net gains.
Bitcoin rallied back to the $10,150 area, but the weaker tone in equities remained an important negative factor.
There was further choppy trading in Asia on Wednesday with bitcoin sliding to near $9,800 before regaining $10,000 as equity markets stabilised.
Ether retreated to near $330, but did demonstrate some resilience and settled around $335 on Wednesday.
Major events for the day ahead: (times in BST)
15.00: Bank of Canada policy decision