FX & market recap:
The Cambridge dictionary says that if you something ”on a wing and a prayer” you do it hoping that you will succeed, although you are not prepared enough for it. That sums up the overnight equity and FX moves.
Wall Street soared yesterday, and global equity indexes followed overnight, mainly because of a report that a drug company Moderna, will start Phase 3 of a study to see if their COVID-19 vaccine works, beginning July 27. The scientists at Moderna want to know if the drug is safe and effective. Equity traders reacted like they announced a cure.
Equity markets ignored warning bells in the Big bank earnings reports. JPMorgan, Citibank, and Wells Fargo have made provisions for about $28 billion in loan losses, due to the pandemic. It’s hard to see equities rising when bankruptcies and unemployment soar. US industrial production, Capacity Utilization, and Import/Export Price data are on tap today.
Canadian dollar highlights:
USD/CAD drifted lower, alongside broad US dollar weakness, but remains range bound inside a 1.3490-1.3660 band. The Bank of Canada is widely expected to leave policy unchanged, but the currency may be vulnerable to a weak, or pessimistic outlook.
Euro highlights:
EUR/USD ticked higher in Asia, rising from 1.1392 to 1.1410, then popped to 1.1444 in Europe, on the back of equity inspired “risk-on” sentiment. Traders seem unconcerned about downside risks to the single currency from Thursday’s ECB meeting as officials are expected to leave rates and policy unchanged. Friday’s European Union Recovery Fund discussions are another risk. The intraday EUR/USD technicals are bullish following yesterday’s break above 1.1370 and looking for a test of resistance of the March peak of 1.1490.
British pound highlights:
GBP/USD rallied alongside the single currency, but prices remain below resistance in the 1.2660 area. UK inflation rose 0.6% y/y, and Retail Price Index climbed 1.1% y/y, which provided a little additional support to the currency pair.
Asia Pacific highlights:
USD/JPY traded sideways in Asia, then dropped from 107.30 to 106.90 in Europe, opening at the low in NY. The BoJ left rates and policy unchanged, as was expected. Meanwhile, AUD/USD, and to a lesser extend NZD/USD, rode the COVID-19 vaccine wave. However, AUD/USD continues to struggle with resistance around the 0.7000 area.
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