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Currency Market Analysis

Jul 07, 2020 | Currency Market Analysis

Global Themes

Best day for Yuan since December as risk on moves weigh on the Dollar

EUR: Euro rallied past 1.1300 overnight as risk on flows meant investors moved out of safe haven USD into other assets, with NASDAQ closed at another all time highs again while Dow and the S&P also made gains. There was some profit taking in EUR after US posted better than expected service ISM. Technically speaking, short term resistance still stands at 1.1350/53 which is the top end of this 4 week range, and mid June high, while support is at 1.1150 still. A sustained break of this could open for 1.1422 June high at least. Looking ahead, hopes are high for the European Council meeting on Wednesday regarding the EUR 750bln recovery funds.

JPY: USDJPY did not benefit at all from the risk on rally led by global equities, as investors are selling USD into other risky assets on hopes of economic recovery as the world is trying to move on from COVID 19. The broad range is still 106-108, and according to Reuters, the pair needs to close above the 100-DMA at 107.83 and the 50% Fibo of the June drop at 107.96 to reopen a path to the 200-DMA and 61.8% Fibo at 108.40/41. Looking ahead, not much key economic data out of the US so market will focus on speeches by central bankers tonight.

GBP: Sterling traded marginally higher overnight, managed to go above 1.2500 but is bounded by 50% Fibo level at 1.2532 and 24 Jun high at 1.2541 at the moment. The Pound benefitted from the improvement in global risk sentiment overnight but lingering Brexit uncertainties can still threaten the rally. UK and EU officials are meant to meet this week to discuss Brexit, while Banks urge Britain and EU to sort out financial market access (Reuters). British finance minister Rishi Sunak is considering plans to hand out vouchers of 500 pounds ($624) for adults and 250 pounds for children (BBC).

CNH: The yuan had the best day since December, with USDCNH trading at the lowest level since March, and technically speaking, the break of 200 day moving average at 7.044 could be significant for a move further downside. 7.00 is more like a psychological barrier and below that the next supports are at 6.96/92. As mentioned yesterday here that Reuters had a article about Yuan may play catch up to the Chinese equities and we just had that yesterday. However, it is not all good news as Trump weighs on executive order on China’s manufacturing and immigration, according to Reuters. In addition, US trade groups are urging China to increase purchases as part of the phase 1 trade deal (Reuters)

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