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Daily Market Report – 24th June 2020

Posted: 24th June 2020

Trade ideas & Daily market report June 24th 2020

Market highlights.

EUR/USD

There was a strong recovery in the flash June French PMI indices with the services-sector index at 50.3 from 31.1 previously while manufacturing and composite indices also recovered to above 50.0. There was a slightly less robust recovery for the German indices with manufacturing at 44.6 from 36.6 previously. The Euro-zone composite index strengthened to a 4-month high of 47.5 from 31.9 previously. The data still indicated contraction for the Euro-zone as a whole with new business and order backlogs also continuing to decline, but there was a further sharp increase in business confidence.

EUR/USD moved higher following the data on recovery hopes, although there was selling interest above 1.1300. Sentiment was dampened slightly by reports that Germany would impose a local lockdown in the Gutersloh district in North-Rhine Westphalia due to the outbreak at the Tonnies meat-processing plant.

According to sources, the EU will hold another meeting to discuss the recovery plan on July 17th and it may not be the last meeting.

The flash US manufacturing PMI index strengthened to 49.6 for June from 39.8 and above consensus forecasts of 48.0 while the services-sector index strengthened to 46.7 from 37.5.  This was a 4-month high, but the only one of the main European and US releases which did not exceed market expectations by a significant margin. New home sales were above consensus forecasts at an annual rate of 676,000 from 580,000 previously with the Richmond Fed index recovering strongly to 0 from -27 previously.

The dollar overall remained weaker as defensive demand faded and commodity currencies strengthened with EUR/USD strengthening to weekly highs near 1.1350 before fading slightly. The US currency maintained a soft tone on Wednesday with EUR/USD holding above the 1.1300 level.

USD/JPY

Following the overnight scare on Navarro’s China comments, risk appetite held firm ahead of Tuesday’s New York open, but the yen was able to resist significant selling. Wider dollar losses had a notable impact with USD/JPY retreating sharply to lows near 106.10 before a recovery to the 106.45 area.

US medical adviser Fauci stated that the surge in Florida coronavirus cases was disturbing and that the next two weeks will be critical in addressing spikes. Texas also reported a record increase in new infections for Monday and more than double the increase recorded a week ago which triggered fresh unease with no dollar headway.

In its summary of opinions, the Bank of Japan stated that a prolonged negative impact of coronavirus on the economy looks unavoidable.

The Chinese Beige Book reported that the economy contracted for the second quarter from the previous year and expects negative growth for 2020 as a whole. Beijing, however, indicated that June imports from the US had increased sharply which helped ease immediate trade tensions.

Risk conditions were steady in Asia with USD/JPY finding some support below the 106.50 level, although with a lack of underlying US currency demand.

Sterling

The headline flash June UK PMI manufacturing index edged back into expansion territory with a 4-month high at 50.1 from 40.7 and above consensus forecasts of 45.0. The services sector index also posted a strong increase to 47.0 from 29.0 and well above consensus forecasts of 40.0 amid a limited re-opening of the economy. Business confidence strengthened further, although underlying order flows remain weak and employment continued to decline for the month.

Sterling moved higher following the data, but again failed to sustain the advance and dipped lower into the New York open amid negative sentiment.

Sentiment stabilised after UK Prime Minister Johnson outlined an easing of restrictions in England from July 4th with many leisure and hospitality facilities allowed to re-open which will help boost the economy at the start of the third quarter.

Firm risk appetite also underpinned the UK currency as GBP/USD eventually moved above 1.2500. EUR/GBP advanced to 3-month highs around 0.9080 before a correction to 0.9030 at the European close. Sterling was little changed on Wednesday as GBP/USD held just above 1.2500.

Swiss franc

Global risk conditions were a significant factor during Tuesday with the Swiss franc tending to lose ground as European equity markets made net gains. EUR/CHF advanced to the 1.0700 area amid wider gains for the single currency while USD/CHF retreated to lows below 0.9450 amid wider weakness.

Although equity markets held firm, there was further demand for gold during the day which provided an element of protection for the Swiss currency. Negative real yields will also underpin demand for the Swiss currency even with negative Swiss nominal rates. USD/CHF was held just below the 0.9450 level on Wednesday.

AUD/USD + USD/CAD

The Australian dollar continued to make headway during Tuesday with support from a weaker US currency and buoyant risk conditions.

AUD/USD strengthened to highs around 0.6975 before correcting slightly amid reservations over the underlying situation with China.

The currency was unable to regain traction on Wednesday with a reluctance to engage in aggressive buying and AUD/USD was around 0.6940 at the European open.

Oil prices initially held firm which underpinned the Canadian currency with USD/CAD dipping to lows around 1.3485 as the US currency lost traction, although there was support below this level.

Oil prices retreated later in New York with USD/CAD recovering to the 1.3550 area on Wednesday.

NOK+ SEK

The Norwegian krone was underpinned by firm global risk conditions and net gains in oil prices as European recovery hopes gathered steam

EUR/NOK retreated to the 10.73 area before a marginal recovery as oil prices dipped. There was little change on Wednesday with USD/NOK below 9.50.

The Swedish krona was also underpinned by European recovery hopes following the PMI data with EUR/SEK retreating to near 10.50. The pair traded just below this level on Wednesday with USD/SEK around 9.27.

Equities

Euro-zone equities were boosted by the business confidence data with a further boost to recovery hopes. Relief over the US-China trade situation was also a positive element.

The German DAX index posted a 2.1% gain to 2-week highs with major European bourses posting increases of over 1.2% on the day.

Major UK stocks drew support from the government announcement of lockdown easing with firm global sentiment also a positive element. Precious metals made gains and the FTSE 100 index gained 1.2% despite GBP/USD gains.

US equities posted gains despite further unease over the increase in domestic and regional coronavirus cases. Latest data also provided some reassurance with a 0.4% gain for the S&P 500 index as the Nasdaq index posted a fresh record high.

Asian equity markets held firm on Wednesday, although net gains were limited.

Japan’s Nikkei 225 index declined 0.15% as a fragile dollar undermined sentiment while the Australian ASX index gained 0.2% as gains in mining were offset by weakness in the financial sector.

China’s Shanghai index posted a 0.2% gain in late trading with some position adjustment ahead of closures over the next two days and capital-market reform while there was a 0.25% decline for the Hong Kong Hang Seng index.

Commodities

Oil prices were boosted by demand hopes following the latest PMI business confidence releases, especially with equity-market gains and a weaker dollar.

WTI hit highs around $41.60 p/b before a sharp correction amid underlying supply reservations.

API data recorded an inventory build of 1.75mn barrels, slightly above consensus forecasts with a small gasoline draw which hampered sentiment to some extent.

WTI traded around $40.30 p/b with Brent around $42.75 p/b.

Precious metals continued to secure backing from a weaker US dollar with confidence in longer-term fundamentals also a key market influence.

Gold secured significant gains on the day and strengthened to fresh 7-year highs above $1,765 per ounce. Silver also posted net gains, although it continued to hit selling interest above the $18.00 per ounce area.

Gold posted a fresh 6-year high around $1,770 per ounce on Wednesday before a slight correction with silver around $17.90 per ounce.

Cryptocurrencies

Cryptocurrencies held a firm tone during Tuesday while volatility was relatively contained.

Overall risk appetite held firm amid gains in equity markets which provided underlying support for coins.

A weaker US dollar was also an important element while gains for gold also offered potential support.

Overall, bitcoin strengthened to near $9,700 before a retreat to near $9,600 and traded just above this level on Wednesday as narrow ranges prevailed.

Ether was held in tight ranges with consolidation below $245 before an advance to the $247 area.

Calendar

Major events for the day ahead: (times in BST)

09.00: Germany IFO index

15.30: US EIA oil inventories data

 

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