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24 September 2020

Dollar in demand as equities retreat on virus concern

The dollar held onto gains against most currencies on Thursday as signs of an economic slowdown in Europe and in the United States revived concerns about the fallout from a second wave of coronavirus infections.

The euro, already hit by worries about a return to severe lockdown restrictions, faces an additional hurdle later on Thursday with the release of data on German business sentiment.

The dollar is likely to continue to rise as another spike in coronavirus cases in Europe boosts its safe-haven appeal, while Federal Reserve policymakers called on the U.S. government to provide more fiscal support.

“Risk is being sold across the board, and there is a big unwinding of dollar shorts,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities, referring to investors abandoning bearish dollar bets.

“Questions surrounding the coronavirus and the need for even more stimulus are turning flows back to the dollar.”

The dollar traded at $1.1656 per euro on Thursday, just shy of a two-month high reached on Wednesday.

The greenback held near a nine-week high against the Swiss franc at 0.9236, and also held on to gains made in the previous session against the Japanese currency, to stand at 105.45 yen.

The pound bought $1.2705, near its weakest level against the U.S. currency since late July.

A recent decline in commodity prices is expected to increase downside risks for the Antipodean currencies, some traders say.

The Aussie fell 0.45% to $0.7042, near its weakest since July 21.

Across the Tasman Sea, the kiwi fell 0.3% to $0.6529, adding to a 1.3% tumble in the previous session, when the country’s central bank hinted at further monetary easing.

Gold Futures: Door open for extra downside

Traders increased their open interest positions for the second session in a row on Wednesday, this time by nearly 4K contracts in light of flash data from CME Group. In the same line, volume prolonged the choppy performance and rose by 142.2K contracts.

Gold faces interim support at $1,825/oz

Gold prices remain on the defensive amidst rising open interest and volume, opening the door to the continuation of the downtrend in the very near-term. That said, the next interim support emerges at the Fibo level (of the June-August rally) at $1,825.31.

Crude Oil Futures: Door open for extra downside

CME Group’s preliminary readings for crude oil futures markets note open interest went up for the second straight session on Wednesday, this time by nearly 11.5K contracts. In the same direction, volume reversed the previous drop and rose by around 27.6K contracts.

WTI faces the next support around $38.70 (100-day SMA)

Prices of the WTI inched lower on Wednesday in tandem with increasing open interest and volume. That said, there is still room for further decline to, initially, the interim support at the 100-day SMA around $38.70.

GBP/USD could recede to the 1.2650 level – UOB

24-hour view: “GBP dropped to a low of 1.2676 yesterday before rebounding to close little changed at 1.2726 (-0.06%). The price actions were in line with our expectations wherein GBP could weaken further but ‘1.2650 is likely out of reach for now’. While downward momentum has slowed, it is too soon to expect a sustained rebound. For today, GBP could drift downwards but any weakness is viewed as part of lower trading range of 1.2650/1.2760 (a sustained decline below 1.2650 is not expected).”

Next 1-3 weeks: “Yesterday (22 Sep, spot at 1.2820), we expected GBP ‘to trade with a downward bias towards 1.2730’ and we highlighted that GBP ‘has to close below this level before further weakness can be expected’. GBP subsequently dropped to 1.2711 before closing at 1.2734. While GBP did not close below 1.2730, downward momentum has improved considerably. In other words, GBP is likely to weaken further. The next support is at 1.2650. The current negative outlook for GBP is deemed as intact as long as it does not move above 1.2860 (‘strong resistance’ level was at 1.2930 yesterday).”

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