Major non-USD currencies decline on virus fears, UK braces for new lockdown restrictions

(Source: KVB PRIME)

Monday sawa major turn from last week; the Dow Jones closed down by 1.84% at 27147.7, while the NASDAQ unexpectedly recovered by 0.4% to 10980.22. The S&P 500, however, lost approximately 1.16%, dropping to 3281.06.

The financial sectors were mostly weak, though the technology sector performed well.

The European market led the fall with the FTSE losing 3.38%, breaking below the 6000 support to close at 5804.29. The DAX also fell 4.37% to 12542.44.

However, Chinese stocks fared better - the Shanghai Stock, SZSE Component and GEM indices increased by 0.63%, 0.72% and 1.03%, respectively.

In particular, Chinese national defence,finance and digital asset stocks were the most successful intraday.

Crude oil forward contracts

WTI fluctuated between $40.5-$41.2 during the Asian session then fell to $40 before hitting a bottom at $38.65 during the North American trading hours. It eventually closed down by 2.7% at $39.77 per barrel.

Brent also closed down by 3.25% at $41.66 per barrel.

Precious metal forward contracts

Gold prices stayed low and hit daily lows of$1882, falling by $75 before climbing back to $1910. The precious metal ultimately closed down by 1.95% at 1912.33.

Silver behaved similarly, falling by 10%at daily lows and closing 7.67% down at $24.71 per ounce.

Currency pairs

·        USDXup to 93.5(0.613%)

·        EUR/USD down to1.17654(-0.649%)

·        GBP/USD down to1.28105 (-0.911%)

·        AUD/USD down to0.7222 (-0.990%)

·        NZD/USD down to 0.66509 (-1.591%)

·        USD/CAD up to 1.33063 (0.829%)

·        USD/JPY up to 104.654(0.137%)

Global fundamentals

United States

Federal Reserve Chairman Jerome Powell revealed concerns that the US’ economic outlook remains uncertain, despite the fundamental data largely indicating a steady recovery. After a recession in first two quarters, employment and production levels are both experiencing growth.

On Monday, US Federal government debt exploded at a 58.9% pace as Congress passed the CARES Act. As a result, there will now be another US$2.9 trn added to the cost of recovery, leading to a total debt accumulation of $22.5 trn.

Federal Reserve Bank of Dallas President Robert Kaplan, who dissented at last week’s policy meeting, said he doesn’t want to commit the US central bank to providing excessive stimuli once the economy has recovered from the coronavirus pandemic.

Kaplan also believes ‘strongly’ that the Fed should keep its benchmark interest rate in a target range of zero to 0.25% until the economy has weathered the pandemic and is ‘well on track’ to full employment and price stability, which could take at least two to three years.

Once that is achieved, Kaplan said it would probably be appropriate to remain accommodative or highly accommodative, but he doesn’t want to tie policy makers’ hands too much.

Europe

Chief Scientific Adviser to the UK Government, Sir Patrick Vallance,announced that measures must be taken to stop the almost-weekly doubling of coronavirus cases across Britain.

Vallance warned that the UK could see 50,000 new cases per day by mid-October without further restrictions, adding that failing to act ‘would be expected to lead to about 200 deaths per day’the following month.

European Central Bank President Christine Lagarde said the bank could adjust its monetary police at any time if necessary. The market is still expecting there to be another 0.1% interest cut in the near future. The previously established date was in July 2021. Lagarde also expressed her concerns about the high price of the Euro.

Furthermore, German Finance Minister Olaf Scholz stated the debt will run as high as 80% of GDP and the size of the debt will be close to EUR 100 bn at its highest.

Crude oil

Oil production in Libya is slated torecover from 90,000 barrels per day to 310,000 barrels per day following workers’return to work as the lockdown restrictions are lifted.

Major asset intraday analysis

EUR/USD and GBP/USD

Yesterday,Europe’s fundamentals did not follow our predictions. The pound dropped by almost 1% and other currencies from the European regions are also facing pressure.

A reconsolidation could now be on the cards –the EUR’s resistance seems to be around the 1.178 mark, while GBP’s looks closer to $1.283. However, both currencies appear vulnerable to a further drop.

[EUR/USD, four-hour chart] (Source: KVB PRIME)

[GBP/USD, four-hour chart] (Source: KVB PRIME)

AUD/USD

Due to the European fundamentals, the USD was strong yesterday –but the Aussie’s fall was not solely due to the dollar’s performance. AUD/USD fell by almost 1% during the previous session, while the Euro’s was around 0.6%.

In the longer term, there will no support from Australian fundamentals for a stronger AUD – in the short term, meanwhile, the over sold price will need to reconsolidate. Today’s key resistance is around $0.725. 

[AUD/USD, four-hour chart] (Source: KVB PRIME)

Gold

The gold price dropped after Sir Patrick Vallance’s speech, which indicated the current virus situation is out of control in the UK and placed doubt on the effect of a vaccine in the immediate future.

Gold was not sent upwards by this ‘risk event’- we could therefore conclude the price is the key factor for investors when purchasing gold; to some speculators, gold selling at over $1900 is something of a risk in itself.

In the short term, the gold price is oversold so a reconsolidation is required in the near future. The key resistance looks to be around$1930 – though we still don’t hold positive expectations towards gold. 

[XAU/USD, four-hour chart] (Source: KVB PRIME)

USD Index

If our predictions of a price within the $92.7- $92.9 boundary are based on technical analysis,then any jump to 93.7 will likely be due to the fundamentals.

Facing apessimistic recovery outlook due to the coronavirus, GBP and EUR - the major components of USDX –both fell and pushed the USDX higher.

Currently, price is overbought and requires reconsolidation; the key resistance is likely around $93.2 intraday.

[USDX, four-hour chart] (Source: KVB PRIME)