Archives of “June 2020” month

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EURUSD falls to new week low and below lower trend line

  
Analysis, Forex
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Falls below Thursday low at 1.11851. Close risk.

It was just a short two or so hours ago that the EURUSd was breaking higher above 1.12256 and running to the 100 hour MA (currently at 1.1255). The price stalled against that MA level (it did the same on Wednesday) and then fell back below the 1.12256 level again.
Falls below Thursday low at 1.11851. Close risk.
The selling has not let up as the clock ticked toward the London fixing at 11 AM ET/1600 GMT.  That took the price below the low from yesterday at 1.1185 and a lower trend line at 1.1178. The low reached 1.11673 and has since bounced back higher.
It’s Friday. It’s the 4 PM London fixing which can lead to increased volatility and liquidity issues. Nevertheless, the holding of the 100 hour moving average just a few hours ago and the subsequent fall continues to show that the bears are more in control. Resistance at the 1.1200 to 1.1206 area now.

ECB, SNB, BOE announce change to Fed swap lines

  
  Analysis

he major central banks mentioned will reduce the frequency of operations

The change will see the 7-day operations be reduced from daily to three times per week, while the 84-day operations will continue to be offered on a weekly basis.

For some context, these measures were what helped to calm the market down by helping to secure enough dollar liquidity to prevent a liquidity crunch from turning into a real credit crunch back in late March. This was the Fed announcement at the time.
The next few weeks/months is going to be interesting as more and more central banks are weaning themselves off these swap lines and that will see some liquidity insurance sapped out of the market.

ICYMI, the Bank of Korea also announced earlier that they won’t holding any more auctions to provide dollar loans using the Fed swap line past the end of the month.

China says that US decoupling is not realistic or wise

  
  Analysis

Comments by the Chinese foreign ministry in response to Trump’s recent remarks on the US keeping the option open to decouple from China

  • Arbitrarily cutting off these chains and changing economic laws is not realistic
  • Such an act will not solve problems in the US, it will only hurt Americans
There’s nothing much to the remarks above as China is just merely touting that this is but a storm in a teacup on Trump’s recent remarks. It’s all election rhetoric at the moment, so expect more of these to continue alongside the play-acting of keeping the peace via the Phase One trade deal as seen earlier in the day here.

Flood of Japanese money rushing to USD assets

  
  Analysis
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Bloomberg report on Japanese investors, facing ongoing negative rates domestically, are buying dollars and risk assets

  • “The presence of the Japanese as the main carry trade driver seems to be growing as they must turn to overseas investments”
Demand for higher-yielding American assets growing
  • In April, Japan’s money managers bought the most U.S. corporate debt in eight years and the second-highest amount of equities in five years
  • “Japanese investors use yen to fund purchases of Treasuries or U.S. corporate bonds, for instance, to seek credit spreads and these flows are continuing,” said Koichi Sugisaki, a strategist at Morgan Stanley MUFG Securities Co. in Tokyo.
Check out USD/JPY … its net more or less unchanged, even a little lower, since November last year …. Without all the Japanese money leaving yen into USD it’d have to be lower I guess?
Bloomberg report on Japanese investors, facing ongoing negative rates domestically, are buying dollars and risk assets 

Bridgewater warns of a lost decade ahead for stocks

  
  Analysis
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Bridgewater Associates is a Ray Dalio founded US investment firm. Via an analysts’ note:

Analysts at the firm are warning of a lost decade ahead for equity investors.
Citing:
  • U.S. corporate profit margins could reverse the strong growth seen in recent years.
  • these margins have provided a substantial portion of the excess return of equities over cash
  • reversal is more than merely the current cyclical downturn in earnings
  • “Globalization, perhaps the largest driver of developed world profitability over the past few decades, has already peaked”
  • “U.S.-China conflict and global pandemic are further accelerating moves by multinationals to reshore and duplicate supply chains, with a focus on reliability as opposed to just cost optimization.”
Also warn on rising corporate debt due to the efforts made on the coronavirus pandemic.
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