Daily Market Pulse

USD higher for second straight day


The USD is higher this morning as the greenback enjoys its first back-to-back positive days since June. Profit-taking on currency positions and decent economic releases have aided the dollar. If it stays firm a third day, it would be the first time the USD had a three-day winning streak since May. Yesterday’s ADP release was disappointing because it fell way short of expectations as private payrolls grew by 428,000 in August. According to Dow Jones estimates, traders were looking for a number above 1.1 million. So, it’s basically “glass half empty, half full”. The number beat the July number of 212,000 but fell short of expectation, showing the economy is slowing down a bit. Traders will now focus on today’s initial claims release, which is predicted to show 950,000 new unemployment claims, vs last week’s 1,006,000. The focus will then be on NFP payroll due out tomorrow, with estimates showing 1.4 million new jobs created, after last month’s 1.763 million number. More on that tomorrow morning. Equity markets are quiet this morning after reaching strong gains on Wednesday. The DOW rose 454.84 points yesterday to close above 29,000 for the first time since February. Both the NASDAQ and S&P hit record highs. This morning’s opening looks to be a quiet one, but that could change with the initial claims release coming an hour ahead of the opening. US Treasury yields are higher this morning, with the 10-year trading at 0.6559%, while the 30-year is trading at 1.3852%. Expect the USD to remain better bid over today’s trading day.


EUR/USD is trading well of its highs reached earlier this week as traders continue to unload “EUR long” positions after ECB officials commented that they were “concerned” about the single currency’s appreciation. The huge selloff had RSI dipping well below the 30 level at its overnight lows, but there has been some retracement and RSI is now trading at 39. The 50-day moving average has crossed the 100 and 200-day moving averages, and the 100-day looks to be ready to cross the 200-day keeping the downward pressure on the EUR. The actual quote in the Financial Times was, The recent rise in the euro is "always worrisome when you have weak demand”. This was attributed to an unnamed source, but following comments by ECB Chief Economist Philip Lane, that the ECB was “following” the exchange rate, the sellers emerged. The upward move in the EUR last week was fueled by a “dovish” FED. There are concerns now that ECB President Lagarde may follow suit since she had announced a policy review when she took office in 2019. The ECB meets next week. Better than expected US data today could keep pressure on the EUR.


GBP/USD remains under pressure as well, trading slightly higher than lows reached overnight. Technically, the same scenario exists as in the EUR, as the 50-day moving average has crossed the 100-day and is approaching the 200-day moving average. RSI at the moment is right at the 30 level, having dipped below that during overnight trading. Uncertainty about the British economy, exacerbated by the release of UK Services PMI at 58.8 is weighing on the pound. The expected number was 60.1, and while it beat last month’s 56.5, traders reacted by selling the pound. Brexit talks remain deadlocked as Chief EU Negotiator Michel Barnier stated that there has been no progress and accused his British counterparts of asking for the benefits of staying in the bloc without the obligations. Adding to the pound’s “woes”, Andrew Bailey, Governor of the Bank of England, reiterated his position that negative rates are in the BOE´s toolbox, but are unlikely to be implemented soon. Comments regarding negative interest rates always seem to weigh heavily on the pound and yesterday was no exception. With the USD finding some positive footing and nothing coming from the Brexit talks, expect the pound to remain under pressure.


USD/JPY continues to move higher in overnight trading as technically, the currency pair is trading above the moving averages and both the 50 and 100-day moving averages have crossed the 200-day. RSI is currently trading at the 70 level and has been near that level for the last few hours. According to BoJ board member, Goushi Kataoka, The Bank of Japan (BOJ) may need to consider additional liquidity provision steps depending on the economic developments ahead. His comments were made earlier today. Kataoka, a known dove, urged strong easing actions “to show our determination that we won’t tolerate deflation and that we can improve the credibility of our price target.” “The job market is worsening due to the pandemic, which will drag on consumption,” he added. “If the pandemic’s impact is prolonged and hurts companies’ medium- to long-term growth expectations, they may be forced to slash future demand projections and adjust capital spending plans.” These comments helped push USD/JPY higher, as they added to concerns over the political scenario in Japan. Change in government always has traders, selling the currency initially until it is clear who will take the leading role. Expect the pressure on the JPY to continue.



USD/CAD is reacting to lower oil prices this morning, moving towards testing resistance levels and breaking higher. The 50-day moving average has crossed the 100-day, while still a bit away from reaching the 200-day moving average, RSI has risen to 66, and upward pressure remains on the currency pair. Brent crude futures were slightly higher this morning, up $0.02, to trade at $44.45 per barrel, and U.S. West Texas Intermediate moved up $0.09 in early Thursday trade at $41.60 a barrel. But these slight moves higher have not offset the moves yesterday when both Brent and WTI fell more than 2%, with the WTI falling to its lowest close in four weeks and Brent seeing its lowest close since August 21. Data from the U.S. showed that gasoline demand had fallen and that demand recovery from COVID-19 was lacking. While most analysts expect the price of oil to improve in the fourth quarter, as prices remain pressured, commodity-based currencies like the Canadian Dollar will remain pressured as well. Adding to that the recent uptick in the USD and USD/CAD could test higher levels later today.


The United States and Mexico plan to hold talks within 90 days to discuss U.S. concerns that imports of Mexican fruits and vegetables could be harming U.S. farmers. U.S. Trade Representative Robert Lighthizer’s office announced Tuesday the United States wants to specifically look at imports of strawberries, bell peppers, and other seasonal perishable goods, and that the review could lead to the imposition of tariffs.  “President Trump recognizes the challenges faced by American farmers and is committed to promoting and securing fair trade and a level playing field for all American producers,” Lighthizer said in a statement. Mexico’s economy ministry committed to participating in the talks and, in a statement, said it wants to "find mutually satisfactory solutions to the concerns raised by the agricultural industry of both countries.” Mexico also said it would seek to "defend the preferential access of Mexican agricultural exports to the United States." The two countries, along with Canada, began a new trade deal called the U.S.-Mexico-Canada Agreement two months ago, replacing the North American Free Trade Agreement that had governed trade in the region for 26 years. 


China Caixin PMI Services dropped slightly by -0.1 to 54.0 in August, which matched expectations. Markit said that new order growth eased further but remained strong. Staff numbers expanded for the first time since January. Output prices rose amid further increase in operating costs. PMI Composite rose to 55.1, up from July’s 54.5. According to Wang Zhe, the Senior Economist at Caixin Insight Group, “Overall, the recovery of the manufacturing and services sectors from the epidemic remains the main theme of the economy.  Supply and demand both expanded. The gauges for orders, purchases, and inventories all remained strong. Price measures remained stable.” She also added concerns about COVID-19 overseas could keep the markets under pressure and improvement in employment, post-pandemic will be a longer-term recovery.


The Brazilian government unveiled a new currency bill on Wednesday. The new 200-real note started circulating countrywide after a ceremony broadcast on the Central Bank’s YouTube channel, which reported 450 million notes will be produced this year. The bill, the seventh in the Real family, pays tribute to the endangered maned wolf. As exchange rates stand today, the note is worth roughly $37.00.  Selected to illustrate the bill following a 2001 survey, the maned wolf is a species threatened with extinction. Biologists argue the animal should be acknowledged for the still un-appraised benefits it can bring to the rural productive sector. The challenge, experts believe, lies in raising awareness among small entrepreneurs about the fact that the maned wolf is omnivorous and can eat small animals, like mice and snakes, which can cause disease in ranch-raised animals.


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