HYCM Market Insights & Trading Tips

Market Mood GBPJPY 26.06.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

Weak GBP, Strong JPY

The Japanese Yen is finding bids on rising concerns over the increase in COVID-19 cases. New US Daily cases have been trending higher and Wednesday this week saw its second highest daily increase at 38,386.

Furthermore, Australia has reported its biggest rise in cases in the most populous state of Victoria. In Germany the Gov’t has re-imposed lockdown measures in the state of North Rhine Westphalia in response to rising COVID-19 case. This resurgence in COVID-19 cases will keep the JPY bid, especially if numbers keep rising from here.

The GBP is under pressure until the UK has arranged a Brexit trade deal. The UK can no longer extend the Brexit deadline and has until the end of October to present an acceptable deal to the EU. Furthermore, with global assets having stalled recently on second wave COVID-19 concerns (particularly in the US, Germany, China and Australia) the GBP’s outlook against the USD now looks weak as the USD has firmed on COVID-19 fears.

Therefore, expect GBJPY sellers on pullbacks.

SwingTrade – We expect this trade to play out between now and the next 4 weeks, However, the trade will remain valid for as long as its underlying factors remain.

Trade Risks

1. Any positive news on a possible UK-EU trade deal will invalid this outlook.
2. If we see a swift fall in COVID-19 cases that will also invalidate this outlook.

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FX Week Ahead 29.06.20
By Giles Coghlan, Chief Currency Analyst at HYCM

The market is being pushed and pulled around by two key narratives. On one hand the prospect and reality of economies opening up post lockdowns is boosting risk assets: stocks, commodities and the high beta AUD & NZD. On the other hand it is the rising US COVID-19 cases that is capping the rise in risk assets. These two market stories are pushing and pulling the risk trade. So on Tuesday European PMI’s were strong, boosting risk assets. However, by Wednesday Texas hospitalisations increased by +7.3% to 4389,California cases rose a record +3.9%, and Florida’s positivity rate jumped to 15.9%. This caused risk markets to slide. This has been the ‘push/pull’ narrative of the market this week.

Key events from the past week

 

1. EUR: Promising European PMI data, Tuesday, June 24. PMI data is a leading indicator that hints at what is ahead for economies. European PMI data beat expectations on Tuesday and France’s PMI readings all came in above 50 showing an expansionary reading. This was positive for the economic growth story
2. NZD: Ready for more QE, Wednesday, June 24. The RBNZ struck a more dov-ish tone in its interest rate report titling it ‘Monetary Policy Easing to Continue’. Consequently, the NZD weakened midweek, but the RBNZ could still change their future outlook as New Zealand is now virtually COVID-19 free.
3. US: EU Tariff announcement, Wednesday, June 24. The US is reportedly targeting $3.1bln of exports from France, Germany, Spain and the UK with new tariffs. This marks an escalation in ongoing tensions between the EU and the US.

Key events for the coming week

 

1. China: Manufacturing PMI, June 30. The hopes of a V shaped recovery were fueled last week by strong European PMI data. A strong PMI reading here from China will help keep the ‘V’ shaped recovery hopes alive.
2. USD: US Payroll Data, July 02. The last set of payroll data from the US was a huge upside surprise. Will US jobs data surprise again this week or will we see falling jobs, earnings, and rising unemployment numbers? Expect the US payroll data to be a key risk driver into the end of next week.
3. Q2 earnings loom. There are growing concerns about the size of global stocks gains since COVID-19 induced falls in March. A key focus going forward will be Q2 earnings and whether these recent gains have been overdone.

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Will a post COVID-19 economy be inflationary or deflationary?
By Giles Coghlan, Chief Currency Analyst at HYCM


Inflation or deflation?

Reuters recently conducted a poll of 161 economists asking just this question. Will we see inflation due to trade friction and shifting supply chains or is it going to be deflation due to weaker demand? The results of the Reuters survey were as follows with only 27% of economists seeing the prospect of inflation in a post-viral global economy.



The consensus view was that over 70% of more than 160 economists see the biggest threat to a post COVID-19 world as being deflation and lower prices. If this proves to be the case this is only going to further increase the problem for central banks who have struggled with low inflation for years now. Taking a look at developed markets expectations for inflation below serves to demonstrate the point. Low inflation expectations appear to be here to stay for some time:



Inflation is always expected but never seems to arrive. To coin a phrase from the author C.S Lewis, ‘it’s always winter, but never Christmas’. Will central banks keep targeting inflation levels or will a new target have to emerge? It is tricky to know how to solve the inflation problem, as inflation was expected to come after QE, but never did. Or rather it did come, but in an unexpected form by inflating stock, property and luxury goods prices.

Precious metal safe havens

If inflation does come the place of haven is into gold and silver. More and more investors are flooding into the precious metal during uncertain times. Gold ETF’s are rising at record levels and here is a piece with some of my comments to CNBC last week on gold prices. Silver is also offering a nice technical entry point on a break of a bull pennant. Inflation, or just the fear of it, maybe enough to push silver higher in the coming weeks.



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Market Mood EURUSD 30.06.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Strong EUR, Weak USD

The COT report shows that Euro net long positioning is reaching high levels last seen in May 2018. In Europe, the COVID-19 case loads are contained and well managed and activity gauges are picking up.

By contrast in the US, the number of COVID-19 cases is rising and 25% of all global cases are now from the US. The response to containing the virus has been mixed and this could open up a divergence in the outlook for Europe and the US. The US Centre for Disease Control and Prevention said on Monday that the US, ‘has way too much virus’ to control the pandemic.

Therefore, expect EURUSD buyers on pullbacks medium term.

Swing trade outlook – We expect this trade to play out over the next 4 weeks. However, the trade will remain valid for as long as its underlying factors remain valid.

Trade Risks

1. Any indication that US cases are falling sharply will invalidate this outlook.
2. If we see a swift rise in European COVID-19 cases that will also invalidate this outlook
3. Any strong risk-off tones that result in USD buying will invalidate this outlook.

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Ten bearish reasons for US stocks heading into Q3
By Giles Coghlan, Chief Currency Analyst at HYCM

Last quarter was the best result for Wall Street from the last 20 years. However, remember that it is normal for the biggest bull markets to come in the recovery from a recent crash as we have seen recently. An interesting piece on Bloomberg’s market’s live blog made a bearish case for stocks yesterday. Below is the summary in ten points. This article is supportive of those who are highly skeptical of recent stock rebounds and particularly focused on the challenges involved with the longer-term impacts of the virus on jobs and the economy.

Reasons for bears to hold shorts

 

1. Despite recent minor falls in equity markets the major indexes still look expensive. 13 of the 20 biggest stock markets (market cap exceeding $500 billion) traded June 26 at forwarding p/e at least 3 points higher than at the end of 1h, 2019, but most price-to-book ratios note.
2. Risk assets are now skewed to the downside in light of point 1 above as future earnings will struggle to justify further price gains.
3. Investors seem short-sightedly focused on the short term trajectory of the pandemic rather than its long term impact. This is short-termism.
4. The Global economy will take many years to recover from due to the pandemic’s long-lasting effects. Hundreds of millions have lost their jobs, some sectors of the economy will need re-tooling and some may not even be able to re-start operations.
5. Airlines, cruise ships, mall owners, and tourist companies all face uncertain futures. For example, Qantas airways is forecasting no international travel for one year and no A380 flights till 2023.
6. With PMI’s around the world being heralded as the ‘V’ shaped recovery such indexes they would need several months well above 50 before they signal any sense of a full recovery. Also, note that they are leading indicators.
7. US GDP forecasts are for a -5.75% shrink in 2020, followed by +4.1% growth next year and +2.9% expansion in 2022. By the end of 2022 the US would still be behind where it was expected to be this year before COVID-19. This is a slow projected recovery.
8. Upcoming US elections are set to deliver more partisan politics and division in the US and that can drag on economic recovery.
9. The US-China trade war is still bubbling away in the background and that has the potential to flare up at any time.
10. Assets have recovered too fast, too quickly and as company profits dwindle so will asset prices as earning start getting released showing the impact of the virus.

All about jobs?

One of the further big questions is how will the job market be impacted post COVID-19? If the job market can keep going then that bodes well for consumption. One key aspect will be NFP due out tomorrow. Remember that around 70% of the US’s GDP comes from its consumers. If job losses start coming in waves then the bearish case outlined above starts becoming a reality. For now, fiscal and monetary stimulus is keeping the bull case going, but that can’t fight millions of job losses. NFP will be a key focus for tomorrow.

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Market Mood EURGBP 01.07.20

Attached Image (click to enlarge)

Strong EUR, Weak GBP

The GBP continues to look vulnerable medium term as the UK has still not arranged a trade deal with the EU. EU’s Chief Brexit Negotiator Barnier warned that British negotiators will not be able to insulate London from the impact of Brexit. Over 100 UK company heads have recently warned PM Johnson of the huge damage to the UK economy if Britain exits the EU without a trade agreement.

By contrast, Europe has falling COVID-19 cases and a huge spending PEPP programme of over €1 trillion alongside a proposed Recovery Fund to support the most struggling EU members like Italy. This should keep the EUR supported.

Therefore, expect EURGBP buyers on pullbacks medium term.

Swing trade outlook – We expect this trade to play out over the next 2 weeks. However, the trade will remain valid for as long as its underlying factors remain valid.

Trade Risks

If we see a swift rise in European COVID-19 cases that will also invalidate this outlook.
If we see the ‘frugal four’ (Austria, Denmark, Netherlands, and Sweden) reject the recovery fund this will drag the EUR down.

Entry/Exit Guide

Entry: 0.6561 buy on stop
Stop loss: 0.6551
Target: 0.6000

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Upside bias for EURSEK after Riksbank meeting?
By Giles Coghlan, Chief Currency Analyst at HYCM

Riksbank decision favours SEK weakness

Yesterday’s Riksbank decision opens up the potential for more SEK weakness going forward. The key takeaways from their decision are as follows:

1. QE purchases are increased to SEK500B from SEK300B. Remember that QE weakens a currency so that in itself gives a reason for SEK weakness going forward.
2. The Riksbank is prepared to cut rates if seen as effective. Here is the extract from the release, ‘The Riksbank is prepared to continue to use the tools at its disposal to provide support to the economy and inflation. The repo rate can also be cut, if this is assessed to be an effective measure’.
3. This means that the Riksbank is prepared to cut rates back into negative territory if it deems it appropriate.

Now the SEK has seen a recovery against the EUR in the last few weeks, but this reopens the potential case for EURSEK bulls. The technical picture shows a key place where bulls might join EURSEK long and limit their risk in case the outlook goes against them. The bullish case is that it is reasonable to expect more prolonged SEK weakness now the Riksbank has shown a bearish hand. You can read the full report here.

ING, however, are not convinced on further EURSEK upside and see the pair trading at 10.00 by year-end. Here is their take on the decision:

‘We don’t see today’s decision as a game-changer for Sweden’s krona, and so far the impact on the currency has been fairly limited. The bar for a rate cut is high, the extension of QE is not a complete surprise (the timing of the decision maybe, but not the extension itself) and the prime driver of SEK should continue to be the general risk environment, which we expect be constructive in the second half of the year.’

However, the EUR part of the trade has reason fro strength. Europe has falling COVID-19 cases and a huge spending PEPP programme of over €1 trillion. Furthermore, it also has a proposed Recovery Fund to support the most struggling EU members like Italy. This should keep the EUR supported in the medium term and provide support for EURSEK upside. As long as favourable divergences remain between the EUR and the SEK near term risk can be managed below 200DEMA and ascending trendline targeting most recent swing highs.

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Market Mood GBPNZD 02.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

Strong NZD, Weak GBP

The GBP is a vulnerable medium term until the UK has arranged an EU-UK trade deal. This limits the upside in the GBP and sellers have consistently been found on the GBP’s rallies higher. The NZD still has some of the lowest numbers of COVID-19 cases and the economy has been able to start operating before many other major economies. Therefore, expect GBPNZD sellers in the medium term. One key area for sellers will be the return to the descending daily trendline marked on the chart below where sellers can limit their risk.

Swing trade outlook – We expect this trade to play out over the next 2-4 days. However, the trade will remain valid for as long as its underlying factors remain valid.

Trade Risks

1. If we see a swift rise in New Zealand COVID-19 cases that will invalidate this outlook.
2. If we see progress between an EU and UK trade deal that will invalidate this outlook.

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How Merkel can smooth the Recovery Fund proposal
By Giles Coghlan, Chief Currency Analyst at HYCM

If agreed, how will the European Recovery fund impact the EURUSD?

The European Recovery Fund is a €750 billion post COVID-19 fund designed to support the eurozone. This will be alongside the already proposed €1.3+ trillion PEPP program However, not all the nations are in agreement with the Recovery Fund’s terms as they are against grants being given out and would prefer loans. These nations who are deemed as being most at risk of rejecting the proposed fund are Austria, Denmark, Sweden, and the Netherlands. They are known as the ‘frugal four’ and have the potential to de-rail the proposed fund and sink the Euro. The FT had an interesting piece recently on how Angela Merkel might be able to persuade the so-called ‘frugal four’ to stay on board with the European Recovery fund.

How Merkel can persuade the frugal four?

According to the Financial Times, Ms. Merkel is able to make some headway in appeasing the frugal four by saying that EU countries must show a willingness to reform their economies and ‘future proof’ them. In essence, it is a way of adding strings to the receipt of the recovery fund. You can read the full article here (it may be gated). Ms. Merkel will seek a compromise in order to support weaker economies in the zone like Spain and Italy, but also without unduly alarming the frugal four.

What’s the impact on the EURUSD?

If the Recovery Fund is able to be finally agreed, and the frugal four are satisfied enough to support it, then the EURUSD will be supported. Any return to 1.1030 would be considered good value for EURUSD buyers, especially as US COVID-19 cases are rising more and more. The US economy looks like slipping behind the Eurozone economy the longer this US case count keeps rising.

However, if the Recovery Fund is rejected this will surprise the market so expect a sudden and sharp drop in the EURUSD on that news.



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Market Mood GBPJPY 03.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

Strong JPY, Weak GBP

The UK is still awaiting a trade deal with the EU and recent rhetoric has shown that the two sides are still some way from an agreement. On July 02 EU’s Von Der Leyen says that the EU will have to prepare for other possible exit strategies on Brexit given that the EU and UK are still far apart. EU’s chief Brexit negotiator Barnier says serious divergences remain with the UK after 4 days of talks.

The JPY will stand to gain as a safe haven currency if the US COVID-19 caseload keeps increasing. US Daily COVID-19 cases increased to a record 55000 yesterday and top medical advisor Dr. Anthony Fauci warns the coronavirus may have mutated to become more infectious.

Therefore, expect GBPJPY sellers in the medium term. One key area for sellers will be the return to the descending daily trendline marked on the chart below where sellers can limit their risk.

Swing trade outlook – We expect this trade to play out over the next 1-2 weeks. However, the trade will remain valid for as long as its underlying factors remain valid.

Trade Risks

1. A fall in US COVID-19 cases will invalidate this outlook.
2. If we see progress between an EU and UK trade deal that will invalidate this outlook.
3. Further Positive vaccine news could also invalidate this outlook.

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FX Weak Ahead 06.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

On one hand, the prospect of economies opening up post lockdown boosted risk assets like stocks and commodities this week. However, on the other hand, rising US COVID-19 cases limited the rise in risk assets. The fear is that a strong rise in cases will result in further shutdowns in the US. The US is now the most infected nation in the world with a current total of 2.7 million cases. This represents one-quarter of the entire global caseload. Top disease researcher Dr. Anthony Fauci told the US Senate that he “would not be surprised” if new virus cases in the US reach 100,000 per day. Next week will be key in gauging global stock reaction to these rising cases.

Key events from the past week

 

1. US Stocks: Ending the quarter higher, Tuesday, June 30. US & European stocks ended the quarter with record gains. The Nasdaq had the best quarter since 2011, the Dow since 1987 and the S&P the best quarter in 22 years, but will US stocks be able to match these gains with COVID fears mounting each day?
2. China: PMI data improves, Wednesday, July 01. The official PMI data from China showed an improvement in manufacturing at 50.9 vs expected 50.4 and ser-vice data 54.4 vs 53.5. This was matched by the private Caixin data on Wednesday which came in at 51.2 vs 50.5 expected. This was positive for risk assets.
3. US: Non-Farm Payrolls, Thursday, July 02. The US jobs number showed a positive beat with unemployment ticking down to 11.1% from 12.3% and jobs in-creasing to 4.8mln vs the 3mln figure expected. All in all a solid jobs report.

Key events for the coming week

 

1. AUD: Interest rate decision, July 07. The chances of an RBA rate move are unlikely this month. The OIS markets have priced in a ~50% chance of 0.25% rate cut, but the overall OIS curve remains steady for the next 12 months, so in practical terms that means no change is expected.
2. USD: ISM Service PMI July 06. The services PMI data will need to show an above-expected print in order to keep the hopes of a ‘V’ shaped recovery alive for the US. However, unless demand picks up to pre-COVID-19 levels then any recovery in US stocks is likely to be short-lived.
3. US second wave fears. The US is facing a fresh wave of new COVID-19 infections. The centre of this new outbreak is Texas, Florida, Arizona, and California. If these cases keep rising in the US the USD may start to weaken on concerns about the US economy shutting down.

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When oil traders thought Apple data had found them a great edge
By Giles Coghlan, Chief Currency Analyst at HYCM

Getting an edge

Investors are always very keen to be on the right side of trades as soon as possible. Data sources that offer clues on commodity usage are highly sought after. A few weeks ago oil traders thought that they had come across a data source from Apple which gave them an edge. It seemed to offer a way that oil traders could potentially monitor real-time fuel demand from consumers.

Majority of oil consumption is through transport

Nearly three-quarters of all oil consumption worldwide is due to vehicle movements. It was thought that Apple could monitor real-time fuel demand as consumers planned their journeys. This data seemed especially valuable as traders had been recently looking for clues on the speed of the post COVID-19 lowdown recovery/

Apple’s tracking oil demand

The data from Apple came mid-April when Apple revealed new data on human mobility trends. This captured the user’s activity in looking for directions on smartphones. It was thought the user’s search activity could offer real-time insight into immediate fuel demand levels as journeys were planned.

However, it was not as effective as thought

However, the user’s data was found out to be ineffective in indicating fuel demand. This was due to the fact that the user’s search data did not translate into actual activity. US Memorial Day normally starts the US summer driving season, but demand for oil fell for the week, including that holiday, by ~6% according to the US Energy Information Administration (EIA). The problem with the data is that it was based on search informational as opposed to actual distance traveled. This makes sense because consumers might just want to search for the location of a business/ building to see how far away it is in case of an order problem or just out of curiosity. It does not necessarily equate to fuel demand.

Other sources energy traders use

So, the search for the ‘holy grail’ of oil data continues. RBC analyst Michael Tran said currently he finds TomTom more reliable than Apple map searches. He attributes this in part because most people don’t use apps to map out their commute. RBC combines TomTom data with other geolocation data that is used in the house for their research purpose and to get a better sense of oil demand.

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Market Mood EURUSD 06.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Weak USD, Strong EUR

Asian equity markets and futures markets have started the week on the front foot as risk-on appetite is supporting the market. Shanghai and Hang Seng have both surged strongly higher up 5.19% and 3.36% respectively. For now, the rising COVID-19 cases are firmly in the background.
In this risk-on environment expect further Dollar weakness.

Expect EUR strength on the expectations that the proposed Euro Recovery fund will be agreed by all 27 EU member states.

Therefore, expect EURUSD buyers for the next session as the current risk-on tone should support the EURUSD pair.

Day trade – We expect this trade to play out before the close of the US session However, the trade will remain valid for as long as its underlying factors remain valid.

Trade Risks

1. A return to concern over rising US COVID-19 cases will invalidate this outlook.
2. Any breakdown in the European Recovery Fund expectations.
3. Any trade tensions between the US and China or any other major economy could invalidate this outlook.

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Iron Ore to find sellers?
By Giles Coghlan, Chief Currency Analyst at HYCM

Bearish factors for Iron Ore

The risk is for Iron ore to lose more value this week as the factors are stacking up in favour of sellers which could lead to a falling second half of the year for the commodity. The initial bullish factors that boosted Iron Ore for the first half of the year are now receding. Here are some of the bearish factors for Iron Ore in the second half of the year according to Bloomberg’s market’s live blog:

 

1. Firstly, China’s steel industry PMI’s have now fallen back into contractionary territory. This indicates future demand could wane.
2. Vessel -tracking data has pointed to rising exports of Iron Ore as the supply chains get going gain and;
3. The indication is that China’s port holdings have now expanded their holding s for a third week in a row.
4. The Brazilian miner Vale is stating confidence that despite the rising COVID-19 cases it can still bring a lot of Iron Ore to market in the second half of the year. According to CFO Luciano Siani Pires this means that Iron Ore prices should fall as the supply levels meet the current demand.
5. The country of Australia which has a large Iron Ore export component to its GDP is showing rising export levels. Australia’s Port Headland, which is the main maritime gateway to the nation’s mighty Pilbara mining headland, is expected to release record levels for June flows.

So, the tightness in the Iron Ore market which was characteristic of the first half of the year looks like fading into the second half of 2020. Expect sellers on any retracements higher as long as this remains the case. One risk to this outlook would be if rising global COVID-19 cases result in further lockdowns and disruption to supply chains.

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Market Mood AUDUSD 07.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

Asian equity markets and futures markets have traded mixed overnight. The Hang Seng -0.61% and the Shanghai Comp +1.46% are off their best levels for the day on a liquidity drain from the PBoC and with Chinese Press calling for rationality in the stock markets.

As the risk tone moderates, we can expect some support to come into the Dollar Index, so the USD should be supported on the day as long as the risk-on tone moderates. The AUD should remain under pressure after the country’s second-most populous state announced 6 weeks of stay at home restrictions and a lockdown for the city of Melbourne to curb rising cases.

Therefore, expect AUDUSD sellers from resistance.

Day trade outlook – We expect this trade to play out before the close of the US session, however, the trade will remain valid for as long as its underlying factors remain valid.

Trade Risks

1. A lack of concern over rising US COVID-19 cases will invalidate this outlook.
2. If we see a return to risk-on trading this will invalidate the outlook and support the AUD and weaken the USD.

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Why trading is tricky right now?
By Giles Coghlan, Chief Currency Analyst at HYCM

Trading the FX markets is frustrating right now. Markets are starting sessions risk-on only to finish risk off by the end of the day. It is a repeated pattern to see. It is like the risk-on and risk-off switch is broken. Understanding why that is might help deal with these markets.

The two main stories driving the markets at the moment are in conflict with each other. Let’s call them the ‘happy days’ and the ‘sad days’ narratives.

The happy days narrative

Growing up I loved a program that was shown in the UK called ‘happy days’. It was about a group of young friends having a fun time and enjoying ‘happy days’ together. The character I always most loved was the Fonz. He was effortlessly cool and though he rarely did anything of note, just being the Fonz was enough. With the Fonz, everything was going to be alright. On the show, he only had to appear and the audience cheered. Well, this is like the market happy day’s narrative and the Fonz is a bit like the Fed. With the Fed, everything will be just fine. As soon as the Fed acts to add stimulus to the US economy, the world cheers. Furthermore, the happy days (‘risk-on’) narrative is supported by the expectations that a vaccine is coming by year-end or early 2021. The Fed will fill any gaps with extreme stimulus measures, and life will carry on as before. Happy days and risk on. However, there is also the ‘sad days’ narrative.

The sad days narrative

Another program I enjoyed as a child was ‘He man’. In He-Man his arch-nemesis was Skeletor. An embodiment of death and destruction. Well, this is a bit like the market’s sad day’s narrative. Covid-19 cases are rising and the US is in a second wave, and will this not result in further shutdowns and job losses? Sad days. So, this is what the market is torn between. Sometimes the market focuses on ‘happy days’ and the Fed (risk-on) other days it is future job losses and rising COVID-19 cases (risk-off). Please note, however, that the hope of the Fed’s stimulus program is what is constantly allowing markets to keep rising. US stock markets are now trading at a high P/E ratio largely due to Fed stimulus hopes.

The key questions to ask?

Trading these two different narratives means that there are certain questions to keep asking yourself.

 

1. Are deaths a better gauge to COVID-19 seriousness rather than infections?
2. Or are hospitalisations the real mark we should be focusing on?
3. How close are we really to a vaccine?
4. Are the ‘second waves’ in South Korea and Australia more concerning than in the US?
5. Will re-openings carry on, albeit at a slower pace, or will they stop
6. Is the virus actually airborne and do droplets hold in the air for hours? If this is the case then it proves greater problems for the re-opening narrative.

You can see now why the market is choppy. So, in times like these, wait for the clear narratives to develop before frittering away your cash.

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Market Mood DXY 13.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Asian equity markets traded positively to start the week on a positive risk-on tone. A recent market theme we have been seeing is a ‘risk-on’ Monday and that theme is looking like repeating itself today. The constructive risk on tone has resulted in Dollar outflows which are supporting the major currency pairs. Furthermore, as well as the positive risk tone, the rising number of US COVID-19 cases is also helping to weaken the USD.

Therefore, expect Dollar Index sellers from pullbacks.

Day trade outlook – We expect this trade to play out before the end of the US session.

Trade Risks

1. Any reversal in risk tone would strengthen the USD and invalidate this outlook DXY.

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Market Mood USOIL 14.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

Asian equity markets traded lower overnight as the risk tone was hindered by news of a California shut down. California Governor Newsom ordered indoor activities to close state-wide, including bars, restaurants, museums, zoos, and movie theatres. The negative risk-on tone has resulted in US oil sellers. Furthermore, the upcoming OPEC+ meeting is expected to relax its quotas slightly so that the group’s total production rises by 2 million barrels per day starting in August. Rising production levels are also pressuring oil today.

Therefore, expect oil sellers from pullbacks today.

Day trade outlook – We expect this trade to play out before the end of the US session.

Trade Risks

1. Any reversal in risk tone would strengthen oil and invalidate the outlook.

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Euro risk ahead!
By Giles Coghlan, Chief Currency Analyst at HYCM

European summit on the weekend

German bunds are currently trading at -0.43% on the 10-year chart which is around 10bps lower than a Bloomberg modeled curve mentioned on the Bloomberg Live Blog yesterday. Investors are positioning themselves ahead of the European Council’s summit.

On Friday and Saturday this week EU policymakers will meet to discuss the proposed €750 billion recovery plan. The main issue is whether nations like Austria, Denmark, Sweden, Netherland, and Finland will block the plan. These aforementioned countries are opposed to the idea of large handouts in the form of grants. They would prefer the idea of low-interest loans than just the hand out of a grant.

Pressure is on for the ‘frugal four’ to accept the recovery plan

The pressure is mounting for these countries concerned about the ideas of grants rather than loans to approve this proposed fund. This is because they will not want to be seen as being difficult at such a time of humanitarian crisis as we are experiencing in the COVID-19 pandemic. Positively, on July 10 we had a German official state that Netherlands is unlikely to block the EU recovery fund. Expect any further positive news about the fund being accepted by the frugal four to boost the Euro heading into the weekend.

ECB rate meeting on Thursday

Thursday is the ECB rate meeting with little change expected. With the PEPP program increasing by €600 billion euros last month it is unlikely that we see any changes to the PEPP program on Thursday as the ECB will wait for the latest addition in funds to bed down. However, any surprise decision here will impact the Euro as no changes are anticipated.

The main risk for Euro weakness

If the recovery fund is rejected by the frugal four expect immediate downside for the EUR. However, note that that the second day of the meeting is taking place over the weekend so this is going to be a weekend risk for the EUR. Take a look at how price is coiling up on the daily chart ready for an explosive move higher or lower. Expect technical buyers or sellers depending on which way it breaks.

Attached Image (click to enlarge)

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Market Mood AUDUSD 15.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM


Weak USD, Strong AUD

Asian equity markets traded higher overnight after expectations of more Fed stimulus improved risk tone. Fed’s Harker said that more fiscal stimulus is needed to soften the blow for states and local government. Furthermore, there was positive vaccine news from Moderna. Moderna’s vaccine trial produced a strong immune response for all 45 patients in an early-stage human trial and the findings show the vaccine could provide protection against the coronavirus. The positive risk tone has supported the high beta AUD currency and weakened the USD which has been acting as a safe have currency alongside the JPY recently.

Therefore, expect AUDUSD buyers from pullbacks as long as this risk tone remains.

Day trade outlook – We expect this trade to play out before the end of the US session.

Trade Risks: Any reversal in risk tone will invalidate the outlook.

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