In light of FX Strategists at UOB Group, extra downside in
24-hour view: “Our expectation for NZD to ‘dip below 0.6370’ was wrong as it lifted off after touching a low of 0.6381. The robust and rapid rise has room to move above the 0.6510 strong
Next 1-3 weeks: “Our view from last Friday (12 Jun, spot at 0.6420) was that ‘the near-term bias for NZD is on the downside but any weakness is likely limited to 0.6320 for now’. NZD dropped to 0.6381 yesterday (15 Jun) before staging a sudden and strong surge. While our 0.6510 ‘strong resistance’ level is still intact, downward pressure has been dented and the odds for NZD to move to 0.6320 have diminished considerably. From here, a break of 0.6510 would indicate that NZD could spend some time trading sideways, To look at it another way, it is premature to expect a resumption of the recent strong advance in NZD.”
The ZEW will release its German Economic Sentiment Index and the Current Situation Index at 0900 GMT in the EU session later today, reflecting institutional investors’ opinions for the next six months.
The headline Economic Sentiment Index is expected to improve to 60.0 in June as against a 51.0 reading booked in the previous month. Meanwhile, the Current Situation Sub-Index is likely to arrive at -84.7 versus a -93.5 figure recorded last month.
Optimism over additional stimulus to stimulate the economic recovery worldwide has sent the global stocks through the roof at the expense of the safe-haven US dollar. Therefore, amid broad US dollar weakness, the EUR/USD pair clings onto minor gains heading into the German ZEW release.
Should the German data beat estimates, the shared currency could see a fresh leg higher and drive EUR/USD towards 1.1364 (daily classic R1). A break above which would open doors for a test of the 1.1400 mark.
On a downside surprise, the rates could pare back the previous gains to test the daily pivot point at 1.1295. The reaction to the German data could likely be limited, as investors await the US Retail Sales data and Fed Chair Powell’s testimony for a fresh direction.
At the time of writing, EUR/USD trades at 1.1336, up 0.10% on a daily basis.
The Economic Sentiment published by the
The Federal Reserve (Fed) announced on Monday to enlarge its scope of asset purchases, now including corporate debt under its Secondary Market Corporate Credit Facility. So far, this program allowed buying ETFs, from now on, the Fed will also buy a diversified portfolio of individual corporate debt.
We do not know yet if the Fed’s so-called corporate bond index would be made public – which we doubt given that it would trigger a rush toward the bonds of companies being part of the index, but the details of how the Fed would implement its strategy is clear. This means that the Fed has found a way to come directly to the rescue of distressed companies.
Fed buying corporate debt means that companies will have lighter liabilities against their debt holders and a clearly reduced risk of bankruptcy for their shareholders.
Of course, the Fed’s plans to buy individual corporate debt has been mouth-watering for equity investors, who rapidly put aside the mounting worries of a second wave Covid-19 contagion. The Fed proved once again that it has illimited resources to prevent a market sell-off and to keep asset prices artificially bloated for the sake of the economy. It feels almost like there is nothing to fear for investors; most of the default risk is now shouldered by the Fed. So yes, there is a clear message sent to the market here, go out and buy all you can afford.
In this respect, even Hertz was approved to raise up to 1 billion US dollars of new equity by selling shares to public last week, while it was bankrupt.
US indices reversed early losses and closed Monday’s session in the green.
US futures soared in the overnight trading session. Dow (+1.85%), S&P500 (+1.43%) and Nasdaq futures (+1.16%) hint at a bullish run on Tuesday.
Asian
Activity in FTSE (+2.50%) and DAX futures (+3.00) point at solid gains in Europe as well.
The US dollar was offered along with the US treasuries. The 10-year yield rebounded to 0.75% as investors rushed to equities and corporate bonds. The US dollar index slipped below the 96 mark.
The G10 currencies surfed on the weaker dollar.
The EURUSD rebounded to 1.1350 and is probably set to clear its last week
Cable is also powered by a substantially weaker US dollar. The GBPUSD could extend gains toward the 1.30 mark on the back of an accelerated US dollar depreciation. Released this morning, the mixed employment data had little impact on sterling. The unemployment rate surprisingly remained unchanged at 3.9% in April, as the British economy added 6K jobs in the three months to April. But the average earnings were hit more than expected and the jobless claims rose more than half a million in May, more than the analysts’ forecasts.
More importantly, there may be light at the end of the long tunnel of Brexit negotiations. Johnson said on ITV that he sees a bit of ‘oomph’ in the negotiations. The surprise news that the talks may lead to an exit deal should give an additional boost to the tactical purchases in sterling. Anyway, it is not a good time for
WTI crude traded a touch below $38 per barrel, but the Fed influence could remain short lived in oil markets as more monetary intervention won’t necessarily, and immediately fuel the global oil demand. Therefore, the rising risk of a second-wave contagion could cap the upside potential before the $40 mark.
Gold remains stoic faced with the latest developments. The risk rally that we are seeing right now doesn’t reflect investors’ sincere trust in risk assets, but their faith in the Fed’s capacity to boost the risk sentiment under any circumstance. But the perception of a reduced risk in corporate
The headline General Business Conditions Index of the NY Fed's Empire State Manufacturing Survey surged to -0.2 in June from -48.5 in May. This reading beat the market expectation of -27.5 by a wide margin.
"Thirty-six percent of respondents reported that conditions had improved in June, and an equal percentage reported that conditions had worsened."
"The new orders index rose forty-two points to a level of around zero, indicating that the quantity of orders was unchanged from last month."
"The shipments index climbed forty-two points to 3.3, pointing to a slight increase in shipments. Delivery times and inventories both held steady."
"Firms were much more optimistic about future conditions. The index for future business conditions rose twenty-seven points to 56.5, its highest level in more than a decade."
US Dollar Index largely ignored this reading and was last seen gaining 0.1% on the day at 97.19.
Manufacturing Sales in Canada declined by a record 28.5% on a monthly basis to $36.4 billion, the data published by Statistics Canada showed on Monday. This reading followed March's fall of 9.2% and came in worse than the market expectation for a decrease of .7%.
"April marked the first full month of physical distancing measures in the wake of COVID-19 and manufacturing plants operated at limited capacity or ceased operations completely," the press release read. "In volume terms, manufacturing sales fell by a record 26.0%, indicating that a much lower volume of products was sold in April."
The