Today's FX Comment

October 7, 2020

Good morning. Risk has steadied today as President Trump has walked back some of his comments around fiscal stimulus from yesterday.

You could be forgiven for thinking that the President is making decisions based on the stock market reaction because it certainly feels that way. He tweets about canceling stimulus talks yesterday, the market tanks so later on Trump tweets again in favour of $25bn for Airline Payroll Support, $135bn for a Paycheck Protection Program for small businesses as well as a standalone bill for $1200 stimulus checks. There you have it, stocks bounce. The last thing Trump wants heading into November 3 is a serious decline in the stock market and a slump in the U.S. Economy.

I think Bill Ackman from Pershing Square hit the nail on the head with his tweet last night:

"Mr. President and Madam Speaker, in that you both agree on the first $1.6T of stimulus, why not immediately fund $1.6T of stimulus and leave the disputed $400B to the outcome of the election? That way, Americans in need can be helped now."

That makes sense but politics seems to gets in the way of giving help to people who need it.

 FX thoughts:

AUD - The Oz is still feeling the aftershock of this week's RBA meeting but I think by now the market has pretty much readied itself for a rate cut at the November meeting so that should be less impactful going forward. At the end of the day the AUD will trade in lockstep with the general move in risk in between now and the U.S. election which means expect some choppy price action. The .7060-70 area will be good support (double bottom + 100 day MA) with .7200 capping the topside.

JPY - USDJPY has pushed just above 106 to start the session but don't get too bulled up for a move higher. We're still well within the wider 104.20-106.90 trading range and I think that continues to hold.

GBP - Sterling is a bit lower this morning and continues to get pushed around by Brexit headlines and with EU negotiators in London this week I'm sure we'll get the usual "making progress but still some work to be done" comments. Today it is EU resistance to making any changes to fishing rules that is setting a negative tone. If and when we get a deal I think we move toward 1.3500 with a possible extension toward the 2018 highs of 1.4350 (depending on the overall risk backdrop). No deal and we're back to 1.2000. The real question: is the end of October really a hard deadline? The EU doesn’t think so.

EUR - German industrial production data was a fair bit weaker than expected but the Euro has managed to shrug it off this morning and trade higher in the back of the better risk tone.

Nothing has changed for me here and I think the range is 1.1600-1.1900 most likely right into November 3 (unless we get a Brexit deal that drags Euro higher alongside the Pound). If you are a Euro bull you face some challenges: the EU is still fighting over the wording of the recovery fund, covid restrictions are growing across the continent which will slow the economy moving forward and most importantly the ECB will become more vocal on any approach toward 1.2000. If you're long I think you lighten up toward 1.1900.

 CAD - There isn't much in terms of CAD specific market moving data until this Friday's employment report so in between now and then we're back to trading with the general moves in risk and the broader based moves in the U.S. Dollar. Support 1.3250 followed by 1.3200 resistance between 1.3320-30

Good luck.