· Dollar in the doldrums; U.S. politics, Fed minutes eyed
The U.S. dollar began Monday where it left off last week, caught between pressure from worries about the lagging U.S. economic recovery and support from rising U.S. bond yields and safe-harbor demand.
A boost to sentiment from the postponement of the U.S-China trade deal review - which leaves the deal intact - was muted by uncertainty, ahead of a week a week that includes Federal Reserve minutes and the Democrats’ nomination convention.
Against a basket of currencies the dollar traded under gentle pressure at 93.039 on Monday, roughly in the middle of the range it has held since hitting a two-year low at the end of July.
The yen was steady at 106.54 per dollar, having dipped last week as a jump in U.S. yields drew Japanese investment to U.S. Treasuries.
The United States and China delayed a Saturday review of their Phase 1 trade deal, people familiar with the plans told Reuters, citing scheduling conflicts.
“That’s good news in the sense that it’s something we can place on the back burner for now,” said National Australia Bank senior foreign exchange strategist Rodrigo Catril.
“But there are other uncertainties coming up that need to be resolved,” he said, pointing to U.S. politics as a presidential election looms, and new virus hot spots in Europe that could challenge the perception that the euro is on an uptrend.
Elsewhere, in Japan, data showed the world’s third-largest economy suffered its acutest economic contraction on record in the second fiscal quarter as the COVID-19 pandemic crushed business and consumer spending.
New Zealand delayed a general election by a month as it grapples with a new outbreak of the pathogen, while there have been flare-ups in infections in South Korea, Spain and France.
The euro and sterling were steady in Asia, with the euro last buying $1.1844 and sterling $1.3095.
Markets are also on edge ahead of the release of Federal Reserve minutes on Thursday, looking for any hints of a possible change to the central bank’s guidance at its next meeting in September.
Investors are expecting more tolerance in the Fed’s approach to inflation, said Chris Weston, head of research at Melbourne brokerage Pepperstone.
“The bond market is key here and if the Fed can drive down real yields then the dollar will follow, and gold will rally - and vice versa,” he said.
· Treasury yields fall as coronavirus concerns persist
U.S. government debt prices were higher Monday morning as the U.S. coronavirus death toll passed 170,000, while House lawmakers were called back to Washington amid a standoff on Postal Service funding.
At around 2 a.m. ET, the yield on the benchmark 10-year Treasury note was lower at 0.6947% and the yield on the 30-year Treasury bond was down at 1.4290%. Yields move inversely to prices.
· Postponing the U.S.-China trade deal review may not be a bad thing
Postponing the U.S.-China trade deal review may not be a bad thing, an analyst said on Monday.
The two sides were set to meet virtually on Saturday, but the talks have been delayed due to scheduling conflicts and the need to allow time for the Chinese to buy American exports, Reuters reported, citing unnamed sources. No new date has been set.
However, in the first half of 2020, China bought less than 25% of the targeted full-year amount of U.S. products based on both sets of statistics, data compiled by the think tank showed. The data excludes China’s purchase of U.S. services, PIIE said.
· EUR/USD Forecast: Losing bullish momentum, but far from bearish
The EUR/USD pair finished a seventh consecutive week with gains in the 1.1840 price zone, advancing on Friday on the back of persistent dollar’s weakness and mixed US data. The greenback has been on the backfoot amid mounting tensions with China and the lack of progress among Congressmen over a stimulus package. In fact, the Congress has left for a month-long recess on Thursday, which only escalates concerns about the US economy. As for tensions with China, news on Friday indicated that a review of the trade deal that was supposed to take place over the weekend had been postponed without any new date scheduled.
EUR/USD short-term technical outlook
The daily chart of the EUR/USD pair shows that it has held above the 23.6% retracement of its July/August rally at 1.1740, also above a firmly bullish 20 DMA, which converges with the mentioned Fibonacci level. The Momentum indicator, however, heads firmly lower within positive levels, nearing its 100 line. The RSI has retreated from its recent highs and is stable at around 67, suggesting the pair may soon face a corrective decline. In the shorter-term, the 4-hour chart indicates decreasing buying interest but is far from suggesting an upcoming decline. The pair is holding above bullish moving averages, but technical indicators turned south within positive levels.
Resistance levels: 1.1870 1.1915 1.1950
Support levels: 1.1830 1.1790 1.1740
· Mounting U.S.-China tensions are ‘unhelpful’ for Hong Kong, city’s commerce secretary says
U.S.-China tensions are not good for Hong Kong, said the city’s secretary for commerce and economic development, as he urged everyone to recognize that the “common enemy” of the world is the coronavirus pandemic.
“We are ... seeing U.S.-China tensions mounting, which is unhelpful to Hong Kong, and also to the trade between U.S. and China. But as we are fighting the pandemic, I think the last thing one would want is a further distraction that would disturb or disrupt the trade,” Edward Yau told CNBC’s “Squawk Box Asia” on Monday.
He pointed to the “economic scorecard across the Pacific,” which shows a “very strong” correlation between how well a country has contained the outbreak versus its economic performance. He cited China as an example, where its economy was among the earliest to bounce back, after being the first hit in the pandemic.
· Japan metals manufacturers see pick-up in demand from automakers after first-quarter plunge
Japanese manufacturers of metals, including steel and aluminium, saw their output plunge in the April-June quarter as automakers temporarily shut factories to curb the spread of the COVID-19 virus and to match slumping demand.
They expect a gradual pick-up in metals used in automobiles and other industries toward next March, but not enough to bring demand back to pre-pandemic levels, suggesting a smaller annual import of raw materials such as iron ore, coking coal and primary aluminium ingots.
“Demand for steel used in automobiles will recover from the July-September quarter as automakers are stepping up output, but it won’t be back to 100% by March,” Junichi Akagi, general manager of JFE Steel, Japan’s second-biggest steelmaker, said earlier this month.
· Japan's record economic plunge wipes out Abe era gains
Japan was hit by its biggest economic slump on record in the second quarter as the coronavirus pandemic emptied shopping malls and crushed demand for cars and other exports, bolstering the case for bolder policy action to prevent a deeper recession.
The third straight quarter of declines knocked the size of real gross domestic product (GDP) to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe’s “Abenomics” stimulus policies deployed in late 2012.
While the economy is emerging from the doldrums after lockdowns were lifted in late May, many analysts expect any rebound in the current quarter to be modest as a renewed rise in infections keep consumers’ purse-strings tight.
· South Korea battles worst coronavirus outbreak in months, warns of crisis
South Korea warned on Monday of a looming novel coronavirus crisis as new outbreaks flared, including one linked to a church where more than 300 members of the congregation have been infected but hundreds more are reluctant to get tested.
· Russia reports nearly 5,000 new coronavirus cases
Russia reported 4,892 new cases of the novel coronavirus on Monday, pushing its tally so far to 927,745, the fourth largest in the world.
Authorities said 55 people had died across the country in the last 24 hours, increasing Russia’s official coronavirus death toll to 15,740.
· Oil prices advance as China lines up boost in U.S. crude imports
Oil prices climbed higher on Monday, lifted by China’s plans to ship in large volumes of U.S. crude in August and September, outweighing concerns over a slowdown in demand recovery after the coronavirus pandemic and an uptick in supplies.
Brent crude rose 21 cents, or 0.5%, to $45.01 a barrel by 0023 GMT while U.S. West Texas Intermediate crude was up 27 cents, or 0.6%, to $42.28 a barrel.
Reference: CNBC, Reuters, FXStreet
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