Fed throws more into the mix but it's still very fragile out there
Tuesday 16 June 2020
There was already some risk appetite returning when I finished my report yesterday, as I warned, and a relatively quiet day was later given a kick by the US Federal Reserve announcing they will buy corporate bonds directly including newly issued debt. Cue a surge higher in equities and risk appetite which saw core pairs lifted in a rush.
The Pound got a further lift on reports that the EU might compromise on the highly sensitive topic of fishing rights. That on top of some conciliatroy tones in the talks between Johnson and Von der Leyen.
Since then though we've seen some risk-off sentiment return this morning amid N. Korea/S.Korea tensions, a India/China border incident,and ongoing concerns over a COVID-19 second wave. This morning's UK jobs/wages made ugly reading but to be expected in these current times.
GBPUSD yesterday found itself supported above 1.2500, then once finally back up through 1.2550-60 didn't really look back and helped by the Fed/risk-on/Brexit positives we've seen 1.2688 before retreating this morning to 1.2615.EURGBP continued its retreat as GBPUSD found a bid yesterday and had a look below 0.8950 (GBPEUR up to 1.1183) before rallying again to test 0.8980 (1.1135).GBPJPY also continued its rally with core pairs both finding dip demand and then pushed higher on the Fed news to post 136.35 but since in retreat to test 135.30.
I stay poised to sell GBP rallies overall and buy back in the dips as ever but patience continues to be a virtue and entry level key as always. I still expect to see some dip demand though given the recent rallies.
USDJPY broke up above 107.50 on the better risk to post 107.64 before capping but demand/support building at 107.25-30 again. EURJPY failed above 122.00 but finding support demand at 121.40 on the current retreat. EURUSD initally capped around 1.1265 on those large expiries I highlighted but then enjoyed the happy-clappy train higher to burst up through 1.1300-20 but capping around 1.1350 this morning. USDCHF is holding 0.9480 on the better risk after yesterday's retreat from 0.9550 with every sign of the SNB drawing another line under it as EURCHF heads back above 1.0750 and EURUSD rallies too but some natural demand as well.
AUDUSD has enjoyed the risk-on environment to test 0.6980 before retreating on the softer risk this morning and there's good two-way pips to be had still whatever your bias. USDCAD fell to look at 1.3520 on the better risk with CADJPY demand notable and reversing a few of the recent moves but failing into 1.3600 on the softer-risk rally this morning so far.
Let's continue to be careful out there in all things. Staying safe must be our main priority still.
Interbank rates: 08.32 BST