Monex: EUR/USD lower due to coronavirus infection Trump

Monex: EUR/USD lower due to coronavirus infection Trump

Currency

The news that both Donald and Melania Trump have tested positive for Covid-19 has ignited a risk-off session in markets today, with the dollar sitting higher against both G10 and EM FX with the exception of GBP, due to idiosyncratic reasons, and JPY which is also considered a traditional haven asset. With the dollar supported in this risk climate, oil markets sit lower, US equity futures trade in the red and gold in the green, all of the classic risk-off metrics are performing as expected. Below is a short English commentary by Ranko Berich, Head of Research at Monex Europe on the U.S. dollar, euro and British Pound.

Also overnight, the Democrat-held house passed the $2.2trn fiscal stimulus package drawn up by Biden’s party, with Senate’s approval only needed for the bill to pass. However, the Republican-held Senate is expected to vote down the bill after prominent figures such as Mitch McConnell came out in public to oppose the size of payments and breadth of healthcare support. The legislature is set to end its session ahead of the US election this weekend, meaning the hopes of an additional stimulus package pre-election hinges on the progression of the Democrats $2.2trn proposal in the Senate.

Today at 13:30 BST, the monthly non-farm payrolls report will be released for the US. Initial jobless claims did fall slightly to 837,000 last week but remain stubbornly high when compared to any other labour market shock recent US history. Pantheon Macroeconomics has noted that at the recent pace of declines in weekly jobless claims, the rate of claims will not slip below the 665,000 job high of 2008 until mid-January. The sustained rate of jobless claims suggests risks are tilted to the downside of today’s non-farms print; although the median forecast submitted to Bloomberg sits at 875,000, a large miss seems entirely plausible.

Euro

The euro managed to climb up to an 8-day high against the dollar yesterday as the greenback continued to dip along with JPY and CHF. Whereas the pound was left weaker across the G10 board after headlines around conflicting indications about Brexit talks, this impacted the euro to a smaller extent. Spanish unemployment fell for the first time since July this morning while Bloomberg’s forecasted median foresaw a positive 60K change in the net unemployment figure. This morning, eurozone inflation is set to return to positive territory after having fallen to a negative 0.4% in August for the first time since mid-2016.

Year-on-year, the Consumer Price Index is still estimated to print at -0.2%, however. Much of the weakness in the inflation figures stems from a drop in energy prices and the cut in value-added taxes in Germany, which was imposed to help the German economy work through the economic downturn caused by the pandemic. With energy demand remaining subdued following containment measures and the euro still trading firmly, there are downside risks for September’s inflation as well. The figure is scheduled for release at 10:00 BST. Any significant downward surprise may give the euro a boost, but with the virus story not having changed much since August, there is reason to believe that the reading would be little changed in September.

GBP

Sterling has been on an amusing merry-go-round over the last 24 hours on a series of news stories, which the Monex team shall happily regale our readers with in today’s morning report. The upshot of the stories is that although a lot of noise has been generated by various EU and UK officials, there is still no clear indication of if the two parties are moving towards a successful resolution of trade talks. Yesterday’s news began with a Reuters article citing anonymous EU sources in reporting that a deal on state aid had not been reached and that in any case, a trade deal was contingent on the Northern Ireland protocol of last year’s agreement being respected by the UK Government.

Soon after that, European Commission President Ursula Von Der Leden gave a short statement confirming the EU was beginning legal proceedings against the UK in response to proposed UK internal market legislation. Sterling duly sold off on these headlines, but rapidly rallied around lunchtime when Financial Times reporter Sebastien Payne reported that anonymous UK sources had told him a “landing zone” had been identified on the crucial issue of state aid.

Sterling duly rallied on this headline, but the optimism was short-lived when a second Reuters story cited an EU source in saying the FT headlines were “spin” and that there was “no sign” of a landing zone for fisheries and a level playing field. Sterling has once again caught a bid this morning after a phone call was announced between Boris Johnson and Ursula von der Leyen for tomorrow. Michel Barnier and David Frost will conclude the last scheduled round of official trade talks today, although no press conference is expected. This is an unusual measure and could suggest that talks are at a delicate stage and neither side wants to make public statements. Given yesterday’s anonymous spin fest via the Financial Times and Reuters, the lack of an official press conference is by no means a signal that no headlines of note will be released today.