Daily Market Pulse

USD maintains strength against major currencies


The USD and the equity markets both had better than expected trading days yesterday as the USD maintained strength against the major currencies and the DOW had an excellent trading day, ending up 580 points. Concerns remain around the coronavirus as cases have increased in many states which have forced some governors to pull back and delay re-opening plans. Governor Phil Murphy of New Jersey announced that indoor dining that was supposed to begin on Thursday, will be postponed indefinitely.  Looking forward to today’s events, Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin will testify before the House Financial Services Committee at 12:30 p.m. The joint hearing will address the Fed and Treasury’s response to the coronavirus pandemic. In prepared remarks, Chairman Powell will state uncertainty continues to reign over the outlook for the economy in the wake of the coronavirus pandemic. Additional comments include; “Output and employment remain far below their pre-pandemic levels. The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus. A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities.”  The USD remains higher against the major currencies this morning, but DOW Futures are lower this morning, indicating a negative open on the last day of trading for the 2nd quarter. The US equity market is expected to open around 80 points lower. US Treasury yields are lower this morning based on the release of FED Chairman Powell’s testimony before Congress today. The yield on the 10-year note was at 0.6283%, while the 30-year note was trading at 1.3780%.


EUR/USD is trading lower this morning, as technical levels are pointing towards the downside. The currency pair has moved below the 50 and 100 day moving averages which is always a bearish sign. RSI levels have dipped below the 30 level, indicating an oversold situation at present. USD “safe-haven” strength amid renewed coronavirus outbreaks is being cited as one reason for the lower EUR. Tensions between the US and China remain high and the passage of the Hong Kong bill added to “risk-off” sentiment. Euro economy is still feeling the impact of Covid-19, as Spain reported a GDP fall of 5.2% for the first quarter of 2020. EMU flash CPI came in at 0.3% year-on-year for June after previously recording a -0.1% number. Coronavirus cases remain low in Europe, as the continent looks to re-open and lift air-travel restrictions on July 1. Flights are scheduled to resume with the Euro region as well as to other countries. At the moment, those countries do not include the US. Lastly, EU Council President Charles Michel has expressed his displeasure over the new Hong Kong security law according to Reuters, saying, “We deplore the decision and have voiced grave concerns to China over the passing of the Hong Kong national security law.” The EU block will be discussing possible measures in response to this move. Expect the EUR to remain under pressure during trading today. 


GBP/USD is trading near overnight lows, and the direction remains lower for the cable. The UK economy confirmed weaker growth in Great Britain as first-quarter GDP came in at -2.2% from the previous quarter release of -2%. The second-quarter numbers are expected to be much worse. Technically, the pressure remains on the pound as the currency pair is trading below the moving averages and RSI has dipped below the 30 level. The gradual re-opening of the UK has seen one setback as the town of Leicester had an outbreak of viral cases and new restrictions were imposed. Brexit talks have resumed between the UK chief negotiator, David Frost, and the EU chief negotiator. Michel Barnier, with no real progress reported so far. The EU commission spokesman said that their main target for these upcoming weeks is “to intensify our negotiations in order to make progress in getting a deal. Our goal is to make progress and to reach a deal." Mr. Frost, on the other hand, warned the EU must not drag out Brexit talks into the autumn. This continued logjam has weighed on the pound. The added pressure of new viral cases added to the Brexit negotiating impasse point to a lower GBP.


USD/JPY remains on an upward trend, moving higher for the fifth consecutive trading session. Dismal Japanese economic data continues to support USD/JPY. Japan’s May Unemployment Rate rose higher than the 2.8% forecast coming in at 2.9%. Also, the preliminary readings of May Industrial Production slumped to -25.9% versus last month’s -11.3%. Japan's industrial output fell 8.4% in May from the previous month to mark a fourth straight month of declines, according to government data released on Tuesday morning, underscoring the pain inflicted by the coronavirus pandemic on factory activity. The market had forecasted a 5.6% decline according to a poll conducted by Reuters. Technically, USD/JPY is trading above the moving averages and the RSI levels are approaching the overbought 70 level. One other bit of news from the economic front, the ratio of Jobs to Applicants also fell from 1.23 persons per job 1.2 persons per job which was what analysts predicted.


USD/CAD is trading higher morning as the possibilities of a renewed lockdown to contain the latest coronavirus outbreak, have dampened prospects of a quick recovery in fuel demand. Weakness in oil prices has undermined the “commodity-linked loonie”. US West Texas Intermediate crude futures are lower by $0.26 trading at $39.44 per barrel, after rising 3% yesterday. Brent crude futures fell $0.17 to $41.68 per barrel after rising almost $1 yesterday. It seems as though the roller coaster ride in oil prices continues as strong economic numbers from the US, bolster demand but increasing virus cases seems to keep demand in check. There is certainly plenty of trading interest on both sides of the market. USD/CAD is approaching some strong technical resistance levels and based on RSI readings should bounce off those levels and move a bit lower. After nearing the “overbought” level of 70 in trading earlier this morning, the currency pair has fallen below the 60 level.


Overnight, China passed the controversial security law regarding Hong Kong according to reports from a member of the Standing Committee of China’s National People’s Congress. Reuters announced that the law passed unanimously. This new law will undermine the autonomy that Hong Kong has had that other Chinese cities do not. The news comes a day before the anniversary of the UK handing Hong Kong over to China on July 1, 1997. US and EU leaders had criticized this action by China and markets now await their reaction. China’s Manufacturing PMI beat the expected 50.4 forecast to come in at 50.9 for June. Non-Manufacturing PMI also beat the expected 53.6 forecast to come in at 54.4 in June. China reported 19 new coronavirus cases in the mainland as of the end of June vs 12 a day earlier.  In general, China has successfully "flattened the curve" in recent months, although this follows news that the recent spikes in Beijing have authorities fearing a possible second wave. While the 19 new coronavirus sounds like a small number compared with the thousands of daily cases in the US or South America, several neighborhoods in Beijing were put under restrictions, travel was limited, and a massive wave of fresh testing has been rolled out. Before the recent spikes, the Chinese capital had gone 57 days without a locally-transmitted case.


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