HYCM Market Insights & Trading Tips

What happens if FOMC enact Yield Curve Control
By Giles Coghlan, Chief Currency Analyst at HYCM

The USD has fallen heading into the FOMC meeting and awaits news on whether Yield Curve Control (YCC) will take place.

What is Yield Curve Control?

Yield Curve Control is when the Federal Reserve buys bonds of a specific maturity in order to keep the yield at a pre-determined level. They do this by purchasing the bonds using the QE program which pushes the price of bonds higher and, importantly, keeps the yields lower.

Why do this?

This control is done to keep borrowing costs low so that consumers and businesses are not under unnecessary strain. Low yields means lower borrowing costs which should in theory stimulate growth. The NFP data on Friday meant that there is a chance that business returns to normal too quickly. The break out in the 10 year Treasury bonds highlights the risk. The Fed will get nervous if rates look like returning higher, especially with large levels of borrowing. By controlling the curve you can contain that pressure to hike rates.

Who else has done this?

Other central banks have enacted this. The RBA has announced yield curve control on March 19. It set a target for the yield on three-year Australian government bonds of around 0.25% in line with its benchmark policy rate. The Bank of Japan keeps their 10 yield bond yield at around zero. . Lower yields on bonds make it easier for Gov’t’s to fund their shortfalls and with Gov’t debts rising around the world, this makes sense for Gov’t’s to do, Control the curve, keep costs low.

What happens if Yield Curve Control is used?

It should be USD negative as the yield advantage of the USD is kept in check. This is one of the reasons the USD is falling ahead of the FOMC.
However, If the Federal Reserve are positive about the US economy after the better than expected NFP data from last Friday, and omit YCC, then the USD should rally.

Gold and silver are looking to be a big beneficiary of the Fed using yield curve control and gold and silver buyers are expected on the announcement tonight if they put YCC into place. Here is a look at the silver chart and where bulls will target if the FOMC put YCC into place.



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Market Mood AUDJPY 11.06.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Weak AUD, Strong JPY

Markets are firmly back to a risk-off footing on two factors.

 

1. Firstly, the Fed was downbeat in its assessment of the US economy. Fed’s Powell discussed forward guidance and reviewed Yield Curve Control but stated its effectiveness was still an ‘open question’. Fed’s Powell was downbeat on US jobs stating that despite May’s upbeat NFP reading it could be years until people find jobs again. Oil plunged more than 4%, antipodean (AUD, NZD) currencies were down, and copper prices fell.
2. Secondly, the second wave of virus fears hit the markets as Texas reports its highest one day count of new COVID-19 cases and California’s hospitalisations are at their highest.

So, in this risk-off environment expect the high beta AUD to lose value and the safe-haven JPY to attract bids. Therefore expect AUDJPY sellers on pullbacks today.

We expect this outlook to play out over the next 6-10 hours through to New York close and as long as these trade conditions remain.

Main Trade Risks

The main trade risk is if there is some positive news that changes the risk tone. This could be positive COVID-19 news or any very positive Us-China trade news.

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GBPJPY bearish case remains
By Giles Coghlan, Chief Currency Analyst at HYCM


The medium-term case for GBPJPY bears remains in place. Here is the rationale for the bear case in the GBPJPY pair.

GBP weakness

 

1. Time is running out for the EU-UK trade deal. The UK only has until the end of June to reach an agreement on any EU-UK trade extension. It seems that COVID-19 delays are not enough to automatically grant an extension and PM Johnson is happy to head to the deadline day without an extension. As a result, if no extensions are agreed by the end of June deadline, this opens up the possibility of a hard Brexit. This is GBP bearish.
2. As long as the talk around negative interest rates remains then this keeps bears with the finger on the trigger for shorting the GBP.

The UK is expected to be one of the worst major economies to be hit due to COVID-19 lockdowns.

JPY strength

The JPY is the go-to risk-off currency and has been strengthening lately on the pre- FOMC jitters. Even more so now the Fed has disappointed markets with not putting yield curve control into place. There are further reasons for potential JPY strength going forward. They include the following:

 

1. US/China tensions
2. China Australia trade tensions
3. Euro relief fund rejected by the frugal four
4. Brexit
5. Global pick up in COVID-19 deaths as cases of death accelerate
6. The dreaded second wave of COVID-19

Entry

Pullback entry would be here as marked on the chart above as long as the trade conditions remain the same.

Sell on stop scalping entry would be as follows. Traders looking for the trendline to break could try a sell on stop at 136.35 risking 20 points and trying a total of three times for the break. Since writing this post yesterday the FOMC has pushed this initial trade into play and investors jumped on the trend line break. However, an alternative for some traders would be a sell limit order looking for a retest of the trend line break at 136.60 with a tight stop loss above at 137.20.



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Oil faces headwinds
By Giles Coghlan, Chief Currency Analyst at HYCM

Oil prices have been running higher over the last few weeks on production cuts, hopes of economies running again and the latest OPEC+ production cut extension. However, most recently with the Fed holding back from Yield Curve Control and the risks of COVID-19 second waves returning to the forefront of people’s minds the case for global demand rising any time soon seems pretty unlikely. There are also some further reasons for oil to face pressure to the downside from Bloomberg this week.

Reasons for oil to struggle

 

1. The latest fuel stockpiles in Singapore last week were greater than 56 million barrels. This is the highest level in four years. The stockpiles here raise questions about the effectiveness of the OPEC+ extended cuts.
2. Sinopec, which is China’s top exporting oil company, has reduced exports for June by 50% from May’s level. This lack of demand signals that many economies are unable to imitate China’s economic recovery after re-opening.
3. Finally, China’s net exports of refined oils marked up its first deficit since 2015. This, combined with all of the above, suggests oil recovery will be a bumpy road at least. See chart below:

Furthermore, Goldman Sachs has warned about an unsustainable rally across commodities in recent weeks. The combined picture is likely to keep oil prices capped for the future. Here are some of the key technical areas for sellers.

Expect sellers, if the situation remains the same for oil, from the 200EMA.



Another key place where we can expect sellers is on a re-test of the 4hr trend line below which broke out yesterday. A retest of this level should find sellers on the first test.



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CADJPY bearish bias
By Giles Coghlan, Chief Currency Analyst at HYCM

CADJPY

CADJPY has been weakening recently on a number of factors. Last week there was a sharp fall in global equity markets. This was due to both profit-taking, after a disappointing Fed meeting, as well as the return of COVID-fears. A number of US states are reporting record increases in COVID-19 cases.

This negative sentiment has weighed on the commodity currencies (AUD, NZD, and CAD). Furthermore, remember that CAD is an export economy and that oil markets heavily impact the movement of CAD.

Oil markets pull back

Over the last few weeks the run-up in oil has been impressive) but the run has now come to an end recently on a number of factors:

 

1. Falling demand on COVID-19 second waves fears. The IEA has said that CoVID-19 is causing the biggest decline in global energy investment in history and investment in energy across the world is to drop by 20% or by $400 USD this year vs the previous forecast of 2% growth.
2. Recent OPEC+ production cuts extension is not enough to keep prices afloat in the face of falling demand
3. Finally, last week on June 09, the IEA cut 2020 world oil demand by 120K BPD to 8.34mln bpd which is a further decline in demand showing that the COVID-19 induced slowdown is continuing.

All of the above further weaken the Canadian dollar as oil is one of its major exports. This is a medium-term case for ongoing CAD weakness.

COVID-19 cases return

Here is a reminder of why the prospect of a second wave of COVID-19 is a concern that markets keep in the back of the mind. The Spanish flu’s second wave was far worse than it’s first by around 5 times. Take a look at the chart below to see not only the second wave but also the multiple waves.

As long as cases keep building in the US then expect risk-off flows into the JPY. Furthermore, global output pressures from COVID-19 will only grow the longer that economies are not back to work. As it stood last week the world bank had some pretty grim forecasts going forward.

World Bank says COVID-19 to shrink 2020 global output by 5.2%

 

1. Advanced economies expected to shrink 7.0% in 2020.
2. Emerging markets to shrink 2.5% (first since aggregate data became available in 1960).
3. Per capita GDP global contraction is to be the deepest since 1945-46 as WW2 spending dried up.
4. Updated forecasts show more damage to the economy that April estimates that looked for a 35 contraction in 2020.

CADJPY outlook

All of the above gives a CADJPY a firm bias to the downside. The main risk to this outlook would be if there is some positive COVID-19 news that will result in the JPY weakening.

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AUDJPY medium-term bearish bias
by Giles Coghlan, Chief Currency Analyst at HYCM


COVID-19 Risk

Today started with strong risk on tones but take a look at the AUDJPY pair in case the COVID-19 cases pick up again. There are a few key technical areas in play on the chart.

Also, the latest Beijing outbreak of COVID-19 cases will be under careful scrutiny for the next few days. Approximately 30% of Australia’s GDP comes from trading with China. So, any more news of the second wave of infections within China that will cause the AUD to weaken. The risk here is real as yesterday mainland China reported 8 out of the 16 districts having cases in Beijing.

US-China and US-Australia trade tensions

Although quiet to start the week there are ongoing trade disputes between China, the US, and Australia. These can all flare up from time to time, especially as US elections fast approach. For the US part of the America First policy involves President Trump redressing perceived imbalances in trade between the US and China. Every time the anti-China talk escalates into anti-China action we see risk-off and the AUD sold. The key part of this is recognising that the market responds to ‘action’ not just ‘talk’.

10-year yields weigh on the AUD

The Australian 10-year bond market has a very close parallel to the AUDUSD pair. The recent drop in bond yields we have seen post the Fed meeting last week has added further downside for the pair.



JPY strength

The same reasons above that weaken the AUD will also, simultaneously, strengthen the JPY. This is because of the JPY’s safe-haven status. The outlook for an AUDJPY bearish bias remains in place as long as the above tensions remain. The key trigger for this outlook will be if the COVID-19 cases rise again.

Some technicals on AUDJPY



Here are three places to look for. Expect breaks on either of these trendlines below. The two most obvious ones are marked on the chart. Also, expect sellers on any retracements back to swing highs, again marked on the chart. However, remember that if the risks of COVID-19 second waves dissipate, then the AUDJPY bearish bias will disappear too.

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President Trump boosts the case for Copper bulls
by Giles Coghlan, Chief Currency Analyst at HYCM

Copper Futures contracts rose early yesterday am on the report that President Trump’s administration is preparing a $1 trillion infrastructure boost to the US economy. The money is to be put aside for traditional infrastructures like roads and bridges as well as some being kept for 5G wireless infrastructure and more technological needs.

Will Copper prices exceed $6000?

If the US delivers on this large package this could well be the catalyst needed to take copper prices above $6000. As economies continue to gain pace around the world demand for copper is going to pick up in tandem. In fact, Goldman Sachs has recently raised their 3,6, and 12 month forecasts to $6000,$6250, and $6500 respectively.

Are Supply levels a concern?

Furthermore, to support the Copper bulls case, on top of anticipated rising demand there are some growing supply concerns too. China is expected to produce 75000 tons less this year because of COVID-19. Also, on the other side of the world in Chile, some unions are calling for a reduction in output as some workers fall ill with COVID-19.

COVID-19 push and pull

Yesterday’s news that a relatively low-cost steroid is an effective treatment for COVID-19 is the first really good news there has been concerning treating the virus. It is called dexamethasone. The risk of death is cut by 1/3 for those on a ventilator and 1/5 for those on oxygen. It means that we are finally able to preserve life with relatively cheap medicine. The medium-term impact is that this news should be supportive of risk on tones, but remember second wave virus fears have re-emerged and that is weighing on risk in the short term.

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Market Mood EURGBP 17.06.20
by Giles Coghlan, Chief Currency Analyst at HYCM



Weak EUR, Strong GBP

The GBP rose against the EUR yesterday for two reasons:

1. Firstly, optimism that the EU and the UK could reach a trade agreement relatively quickly. Boris Johnson suggested an agreement could be reached in July.
2. Secondly, jobs data out of the UK yesterday showed that the UK’s furlough scheme has helped prevent unemployment. Britain’s jobless rate held at 3.9% over the three months to April surpassing best expectations.

The EUR is facing pressure as the hotly debated Euro relief fund will be spoken about by EU leaders on Friday. The chances of getting the deal past the ‘frugal four’ (Denmark, Sweden, Netherlands, and Austria) are slim, so the EUR should remain pressured into the weekend against the GBP.
Therefore, expect EURGBP sellers on pullbacks.

We expect this outlook to play out over the next 3 days.

Main Trade Risks

1. One risk is if there is some negative Brexit news. That will weigh on the GBP.
2. Another key risk is any positive news on the Euro Relief fund.

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A case for GBP bulls
by Giles Coghlan, Chief Currency Analyst at HYCM

Brexit 2020, different to Brexit 2016?

A piece on Bloomberg’s markets live blog has recently been released suggesting that Brexit 2020 may be a disappointment. The article reminded the reader that Brexit in 2016 was a shock and resulted in sudden GBP re-pricing. Hardly anyone saw it coming and when it happened the GBP fell suddenly lower. However, this time, it is a different scenario. This is because markets have had the last three+ years of pricing in the GBP’s new rate.

Background role for the UK?

While Europe has been unifying its fiscal and monetary policy to support the whole bloc the UK has been facing not only COVID-19 slowdowns but also the Brexit pricing. The UK and its assets have seen global repricing as the UK is re-evaluated as a medium-sized nation with a highly uncertain trade outlook with its largest trading partner, the EU. Investors have been downgrading the UK’s prospects and you can see that in the falling value of the GBP. It is easy to forget with so many headlines crossing the news feeds that a number of companies are still planning on removing their Headquarters from London.

Is there an upside for the GBP?



So, all of this means that a lot of the ‘bad news’ about Brexit may well be priced in. Although the GBP would be expected to fall lower on a no-deal Brexit in a knee jerk fashion it may well be that the GBP’s downside will be limited. This means that yes, the risk of further downside is still in play as long as a ‘no-deal’ is still a possibility. However, for traders taking a longer-term approach with a 2-3 year timeframe then the outlook looks firmer for the GBP the longer the outlook. This may mean that the GBP has a limited downside to go from these levels. Any positive Brexit news which suggests a deal is on the cards will send the GBP higher.

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A digital future?
by Giles Coghlan, Chief Currency Analyst at HYCM

One of the few winners in the COVID-19 outbreak has been the digital stay at home companies. Companies like Netflix, Amazon, Facebook, and all companies that are in the tech sphere have generally seen their usage increase. The so-called ‘FANG’ stocks have seen investors flock to them on the expectations that their revenues can continue fairly strongly during the lockdowns. In a world where the major connection for people is digital, it makes sense that digital, tech-led companies gain. Furthermore, many companies are finding that their workforce is more than able to fulfil their responsibilities from home. It will not be a surprise if we see less investment in large office buildings in the future. Companies will not only realise the hidden value of a home-based workforce but also start to work harder on the digital transformation of the future.

The spread of COVID-19 seems to be accelerating trends in the way people live. Many people are thinking through the way they organise their lives and it is difficult to see all behaviour returning to exactly how it was pre-COVID-19 even if a successful vaccine is discovered. In fact, the need for new solutions in a locked-down world has encouraged the digital world to really double down on transformation.

Is a post-COVID-19 world digital?

A question on Bloomberg’s markets live blog this week was will a ‘digital reboot sustain after virus?’ It’s a good question. This is a hard one to know the answer too. However, at the very least some businesses have seen that a digital run business can operate more than adequately. Consumer habits will have changed, will they ever return to post COVID levels? We shall see. The initial impact of COVID-19 shutdowns sent the tech-led Nasdaq close to its dot.com bubble peak relative to the S&P500. See the Bloomberg chart below:



The Nasdaq has also made new record highs recently on the expectation that tech companies offer one area where earnings should hold up. How sustainable is this? Is this rise to continue or is this a bubble ready to burst? Companies are now investing heavily in digital transformation in the hope of being part of a new transformed digital age. The question is will the hopes of that age actually deliver in a post-viral world? For investors who think the answer to that is yes, then the tech-led Nasdaq would be an obvious vehicle to try to ride that trend.

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FX Week Ahead 22.06.20
by Giles Coghlan, Chief Currency Analyst at HYCM

The market started the week with a risk on tone as the Fed reassured markets with a pledge to buy US corporate bonds. However, fears re-emerged on Tuesday as a rising number of COVID-19 infections began to be reported across the world. Beijing had cases in 8 of their 16 districts and Texas had their highest number of hospitalisations on Tuesday. This impacted risk sentiment in the week but was partially offset by the reports that the common steroid Dexamethasone is an effective treatment against COVID-19. Most markets kept switching this week between risk-on and risk-off as uncertain headlines pushed and pulled investors.

Key events from the past week

 

1. UK: Dexamethasone, Tuesday, June 16. In a trial led by a team from Oxford University, it was found that dexamethasone cut the risk of death by 33% for patients on a ventilator and 20% for those on oxygen. This is the first effective treatment for COVID-19 and will help boost risk sentiment across stock markets.
2. US: Fed keeps spending, Tuesday, June 16. The Fed announced it would be buying corporate bonds. The Fed also showed some optimism this week as US retail sales showed a strong bounce back this week with the Fed saying that the US economy appears to be re-entering the second phase of the re-opening.
3. GBP: UK interest rate meeting, Thursday, June 18. The Bank of England kept interest rates unchanged and increased asset purchases by £100 billion. The BoE struck a more optimistic tone that the fall in global GDP was less than expected. The GBP saw some initial strength on the BoE’s optimism as well as Brexit hopes for an EU-UK trade deal as the EU showed sensitivity to UK fishing rights.

Key events for the coming week

 

1. NZD: Bank of New Zealand’s rate meeting, June 24. Expectations are the RBNZ will keep its cash rate unchanged. The Market focus will be on future projections as New Zealand’s economy is the first at full strength post-COVID-19.
2. EUR: German Flash Manufacturing, June 23. Will the manufacturing slow down for Germany to continue? First, it was US-China trade tensions and now it is COVID-19 induced slowdowns. However, signs of recovery will be EUR bullish.
3. Potential market movers, Headline risks remain. These are from Brexit, US-China trade tensions, China-Australia tensions, headwinds from the ‘frugal four’ on the European Recovery fund, on top of the second wave infection risk from COVID-19. Any of these events can trigger risk-averse markets and JPY/CHF strength.

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Investors go for gold!
by Giles Coghlan, Chief Currency Analyst at HYCM

Gold in focus

The strength of the recovery from COVID-19 lows across global stock markets has been a surprise to many. Although central banks around the world have stepped in with monetary policy action and govt’s have implemented fiscal stimulus wider questions remain. Will Q2 earnings disappoint? Was it mainly uninformed retail traders who fuelled this recent stock rally. Social distancing measures are expected to limit customer numbers (and profits) until a vaccine has been found.
The most obvious question is how will earnings recover in COVID-19 viral landscape. Indeed, are we even in a post-viral landscape? Gold has hit a one month high this morning as rising US COVID-19 cases raise concerns over a swift economic recovery.

Private banks advising clients to hold gold

According to Reuters most private banks usually advise clients to hold no or virtually no gold. Now, some banks are reportedly advising clients to hold up to 10% of their portfolio in gold. This is due to the high levels of stimulus which is forcing bond yields lower. As central banks purchase bonds, the price is kept high, the yield lows. This in turn keeps the countries interest rates low and makes non-yielding gold more attractive. As cash is devalued by banks QE programmes then gold gains in appeal.

Gold further to run?

Since the start of the year gold has run more than 12% and many analysts still see $1800 as the next target for gold. Reuters spoke to 9 private banks overseeing $6 trillion in assets of the world’s ultra-rich and they had all advised clients to increase their gold holdings. It is worth noting that if we see equity markets falling further it would potentially have a disproportionate impact in gold upside. Bond and equity markets have an estimated $200 trillion value while the smaller gold market is estimated to be less than $5 trillion.



The most common way to benefit from a potential self-fulfilling prophecy (after all if everyone is expecting gold to rise then it will) on gold’s rise is from a choice of four. Gold mining companies, index funds tracking gold, derivatives such as options and futures, and gold itself in the form of bars or coins. Here is a look at the XAUUSD gold chart with major support levels marked where medium term buyers could find value.



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Market Mood XAUUSD 22.06.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Gold prices have hit a month high on the growing fears of increasing COVID-19 cases. The concern is that an increase in US COVID-19 cases will undermine a fast economic recovery.

Furthermore, many investors are increasingly being drawn to gold’s hedging appeal. Weak currencies, the risk of deflation and inflation, low-interest rates, and the rise in the use of QE by central banks around the world all make gold attractive.

Therefore, expect gold buyers at the market and on pullbacks in the medium term.

We expect this outlook to play out over the next 3 months.

Main Trade Risks

1. One risk is if there is a swift economic recovery.
2. Another risk is if there is a vaccine found for COVID-19 that removes the need for gold as a hedging commodity.

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Silver set to tag along with gold
By Giles Coghlan, Chief Currency Analyst at HYCM

Silver set to shine?

The gold/silver ratio is a scale that helps measure the relative strength of gold compared to silver prices. It shows how many ounces of silver are needed in order to purchase one ounce of gold. In order to achieve this number, you simply divide the current price of gold by the current silver price. When you have done this you will have the gold/silver ratio. It is a very simple way to see which of the two metals is gaining value relative to the other.

Using the gold/silver ratio

Whenever the gold/silver ratio rises it means that gold has become more expensive in comparison to silver. You can see how the gold/silver ratio varies over time and how current levels show that silver is undervalued compared to gold. Take a look at the gold/silver ratio chart below:



Recently gold has been looking like it is set to break out of its recent range towards $1800. Furthermore, the fundamental conditions for gold are strong. The USD is expected to weaken, gold-backed ETF’s gaining week after week, and some private banks are encouraging high net worth individuals to allocate more gold into their portfolios. The case for gold and silver longs is looking strong and gold has been an attractive hedge during the last few recessions:



Expect silver buyers at the market and on breakout of the ascending silver trend line. Although the gold/silver ratio has fallen from recent highs – silver still looks good value over the medium term. The main risk for silver buyers would be a swift recovery in the global economy on a COVID-19 vaccine. This would negate the need for precious metals as central banks would start the normalisation progress.



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Market Mood AUDNZD 23.06.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Strong AUD, Weak NZD

AUDNZD is a currency in the spotlight at the moment as both Australia and New Zealand have managed to effectively control the outbreak of COVID-19. A key focus for the pair going forward will be the policy divergence between the RBA and the RBNZ.

The general consensus is that this week’s RBNZ meeting will be dovish. The economy is in recession after GDP shrunk 1.6% in Q1 and is expected to shrink again in Q2. The ANZ Bank said in a note that RBNZ would likely acknowledge activity recovering but would point out that the country had not avoided a recession. According to ANZ’s Sharon Zollner, it would, therefore, strike a balance between “an encouraging tone while still sounding suitably dovish” in order to keep the New Zealand dollar and monetary conditions low.

Therefore, expect AUDNZD buyers from pullbacks.

We expect this outlook to play out over this week after the RBNZ rate meeting.

Main Trade Risks

1. One risk is if the RBNZ is more optimistic than the market is currently expecting.
2. Another risk is any breakdown in the US-China trade deal as that will hit the AUD harder than the NZD.

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What can we learn from yesterday’s German PMI data?
By Giles Coghlan, Chief Currency Analyst at HYCM


The PMI data out of Europe was very good yesterday. Remember that PMI’s are seen as a leading indicator for economies. Yesterday’s PMI’s show us that the general mood is optimistic. European nations look set to re-open their economies and the PMI data shows that hopes of a V-shaped recovery are very much alive. Here are a few points to note from Germany’s PMI data points via Bloomberg:

 

1. General business activity is moving towards stability. It only fell by the smallest amount since the start of the COVID-19 outbreak in March. Readings from the Services business activity and manufacturing production show the same rates of decline.
2. Where activity was falling there were reports of COVID-19 related uncertainty weighing on demand levels and this also led to contracts being delayed/canceled.
3. Some firms were noting pent up demand from the lockdown period as businesses are re-starting production.
4. The latest new order level falls have been the shallowest in the last four months. New Export business showed signs of steadying, but the rate of decline was faster than the of total new orders.
5. However, firms are still on the backfoot with payroll numbers being reduced for the fourth month in a row. The general fall in employment continues to be led by the manufacturing sector.
6. The average charges for goods and services fell for the fourth month in a row.
7. Finally, business expectations turned positive for the first time in four months in June.

Taking the PMI’s as a whole yesterday the anticipated rebound was there. Take a look at the data below you can see that expectations were exceeded. In particular, look at France’s PMI data which came in at over 50 (expansionary territory):

Furthermore, note that with the US showing a rise in COVID-19 cases the case begins to increase for the eurozone putting in a swifter recovery than the US. One key area on the charts is the descending EURUSD trend line. This is a key level for buyers to break through for the buyers to take near term control from the sellers.



One area to be aware of is that if we see any rejection of the Euro Recovery fund this will cap any further upside. Furthermore, any spike/concern over COVID-19 fears will strengthen the dollar on safe-haven bids and drag the EURUSD pair down further.

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Market Mood Copper 24.06.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

Copper is gaining increasing attention and expectations are rising that the metal is medium-term set for growth. Government-supported investment into environmental areas and digitalization will fuel copper demand. Electric vehicles, 5G networks, and renewable power generation all require large amounts of copper.

Morgan Stanley lists copper as their most favoured industrial commodity. The Bank of America expects prices to rise by 5.4% in 2020 to $5621 a ton. They kept their projection for 2021 unchanged at $6250 per ton. So, although copper demand could fall in the near term on COVID-19 fears, it is generally expected to grow by next year. As analysts look to the second half of 2020 copper could do very well.

Therefore, expect copper buyers for the long term into the new year.

We expect this outlook to play out over the rest of this year.

Main Trade Risks

One risk is if there is a second wave outbreak of COVID-19 that shuts down economies once again.

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Market Mood NZDUSD 25.06.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Weak NZD, Strong USD

The NZD is pressured after the RBNZ’s Monetary Policy Committee announced this week where they said they were prepared to provide additional stimulus as necessary. As well as potentially expanding the Large Scale Asset Purchase (QE) programme, the Committee continues to prepare for the use of additional monetary policy tools as needed. This, in line with a dovish tone, has kept the NZD pressured during the session.
The USD has benefited from risk off flows as the US is reportedly targeting $3.1 bln of exports from France, Germany, Spain and the UK with tariffs. On top of this rising COVID-19 cases around the world is keeping the risk off trade supported with the sad news that Texas hospitalisations increased by +7.3% to 4389,California cases rose a record +3.9%, and Florida’s positivity rate jumped to 15.9%.

Therefore, expect NZDUSD sellers for the rest of today’s session.

We expect this outlook to play out over the rest of this day.

Main Trade Risks

1. Market switching to risk on and discounting the relatively small targeted tariff amount of US imports from the EU. (The total amount of imports from EU is around $515bln).
2. Second main risk is the drop in COVID-19 cases prompting dollar selling.

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Top Wall Street Firms Expect Copper Upside
By Giles Coghlan, Chief Currency Analyst at HYCM

Gov’t support to boost Copper prices?

Eurasia Group’s director of energy, climate and resources sees the COVID-19 pandemic as making the way for an ‘age of copper’. This popularity of copper is expected in the coming weeks and months. The main reason for this is due to governments being expected to increase in supported environmental investments. According to Eurasia’s group Henning Gloystein, ‘huge green and digital stimulus programs, especially in Asia and Europe, will create the conditions for a boom in copper demand – electric vehicles, 5G networks, and renewable power generation’. This is what is expected to fuel the so called age of copper. So, where are copper prices now?

Copper sitting under $6000

The big round number of $6000 has been containing copper prices on the London Metal Exchange for some time now. Falling demand for copper prices, due to the COVID-19 outbreak has kept prices under $6000.

Furthermore, be aware that the risks of at least isolated pockets of COVID-19 outbreaks remain in place and that can result in further slumps in copper in the near term. However, at the time of writing there are no expectations that full scale lockdowns like we have experienced will return.

China’s top copper traders sees upside for Copper

The director of Maike Metals International Ltd, He Jinbi, said in a phone interview with Bloomberg that, ‘the pandemic will end and we have already seen the worst’. According to He, an experienced veteran copper trader after establishing Maike in Western China in 1993, copper could trade between $5800 and $6300 through 3Q. He cited the very large levels of monetary support to likely deliver more gains for copper throughout the year. Furthermore, according to He, the recovery in prices have been driven by consumption rather than speculation. A good sign.



Copper is gaining appeal with a number of Wall St banks like Goldman Sachs and Morgan Stanley favouring more upside in the metal over the second half of this year and into next. See the price chart below with any pullbacks lower looking suitable for buying dips. Also, copper futures can be traded, but trades need to be aware that the position cannot be held for many months due to a rollover expiry. Therefore, check if that will suit your requirements. Another alternative is a Copper derived ETF that will not be subject to the same rollover issue.

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Gold to correct lower in the near term?
By Giles Coghlan, Chief Currency Analyst at HYCM

The short term bear case

The general consensus among most analysts is for gold upside in the short and medium term. A recent piece on Bloomberg’s Market Live Blog is making a case for a gold correction in the near term. The logic for the correction was as follows:

 

1. The central bank stimulus has now been priced in and the reflation trade is now faltering.
2. The financial system is not collapsing, yet core gold bullishness is based on the fear that central bank liquidity will devalue fiat currencies and lead to inflation combined with safe haven demand.
3. Therefore, recent bullishness is over done and it is reasonable to expect some correction in gold over the coming weeks

The bullish gold case

On the same day Bloomberg’s Marekt’s Live blog also had a piece arguing for more gold upside. The logic of that pieces was as follows:

 

1. The Rising COVID-19 cases in the US will further ncrease the economic damage already inflicted.
2. This above point means the odds for further losses have risen for shares and more Fed stimulus can be expected to come. Both should aid gold upside.
3. The Fed have already made it clear they are willing to increase stimulus with Fed Vice Chairman Richard Clarida saying the Fed is prepared to take additional steps if necessary.

So, there we have two opposing views on gold. So, what is your take on gold? The medium term picture for gold upside remains in tact, especially with record low interest rates and more stimulus potentially on the way with rising COVID-19 cases.

However, in the short term it is a more open question whether we will see more upside in gold or whether a correction is due. Remember that heavy stock selling has also been weighing on gold recently, so that could hinder higher prices. If gold does indeed correct how far down could it fall? The $1680 is obvious near term support and bulls would be expected to reload at that point in the current climate. It was telling that the article making a case for near term gold bears was not making a case for general medium term gold bearishness. The bullish picture remains in place, even with a short term bear. To invalidate the bullish outlook for gold the market would need to see news of a successful vaccine for COVID-19.

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