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Currency Market Analysis

Jun 16, 2020 | Currency Market Analysis

Global Themes

Currency waters remained choppy with the U.S. currency steadying ahead of a risk-laden North American day. The greenback was broadly flat against the euro, yen and Canadian dollar while sterling recovered from two-week lows on the back of forecast-beating unemployment data. Market sentiment continues to swing between bouts of caution and confidence with the latter boosted by the sense that policymakers are going to great lengths to avoid long-term damage to growth from coronavirus-related business closures. The Fed brightened the mood with a scheme to buy corporate bonds. While the dollar remains a pure risk play, with a tendency to rise when Wall Street stumbles and vice versa, its prospects are also seen hinging on news today on U.S. retail sales, which are expected to rebound from a record plunge, and congressional testimony today and tomorrow by Fed Chairman Powell.

CAD

Canada’s currency rebounded from two-week lows, boosted by firmer oil markets. A nearly 2% gain lifted crude to around $38. Risk sentiment skewed positive also translated into support for the loonie at the expense of the safe play greenback. The loonie faces event risk this week in Wednesday and Friday data on inflation and retail sales, respectively. Outcomes consistent with a somewhat resilient Canadian economy would bode better for the loonie’s coming prospects. 

EUR

The euro wavered ahead of news today on the economy-driving U.S. consumer. Euro buoyancy has flagged a bit as it encounters resistance ahead of its high watermark for the year. Still, bouts of euro weakness have so far proven limited thanks to data like today’s that showed a bigger than expected improvement in Germany’s ZEW survey of investor optimism for June.

GBP

Reports of constructive Brexit talks, coupled with a surprisingly steady British unemployment, helped lift the pound out of its biggest hole in two weeks. Defying forecasts of a rise, British unemployment held steady at 3.9% in the three months to April. While welcome, steady unemployment is unlikely to prove sustainable given the hit to the economy from measures to contain the coronavirus. Weaker U.K. inflation is on the cards for Wednesday ahead of a Bank of England policy announcement Thursday.  

USD

After record plunges over the past two months, retail sales posted a record surge of nearly 18% in May. The data was the latest to suggest the economy had turned the corner after sinking into recession in February. The consumer making such a strong comeback was also supportive of a V-shaped recovery over coming months. For the dollar, it’s likely to take its cues from the extent to which the data fans further risk taking.


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