Markets have given up a small amount of ground overnight as traders were bombarded with news that the US is hardening its stance on China. The US Commerce Department expanded its requirement for licenses for sales to Huawei of semiconductors made abroad with US technology. The requirements are designed to block the Chinese firm’s access to chips but it does not cover chips that are sent directly to Huawei’s customers. This was followed by news that US House Republican Brad Sherman, who is also Chair of the House Financial Services Subcommittee on Investor Protection, introduced legislation aimed at ensuring 'foreign companies' listed for trading on US stock exchanges are subject to the same rigorous accounting audit oversight as U.S. companies. This is another targeted move against China and was followed by the publication of a 20 page report on Chinese policies, issued by the White House. The report highlighted the alleged use of predatory economic policies and disinformation campaigns, along with human rights violations and military build-ups. There were also tweets from President Trump accusing China of “ripping off the US for decades” and not taking action to stop the spread of the virus. The actions from the US are an escalation in tensions with China and markets have so far been acting in a complacent fashion around the backdrop of rising tensions, according to ING. According to their report China is focussing its retaliation on US allies, including Australia whom China has threatened with tariffs after the country asked for an investigation into the Covid-19 outbreak. The market has reacted by giving up some of its gains from yesterday’s session but sentiment still remains strong at present. Markets were also focussed on the release of the FOMC Meeting Minutes yesterday. The FED once again said that it was committed to using its full range of tools to support the US economy. It also said that coronavirus would weigh heavily on economic activity, employment, and inflation in the near term and posed considerable downside risks to the economic activity over the medium-term. It expected to maintain current target rates until they were confident that the economy had weathered recent economic events and was on track to achieve the Fed's goals. It also highlighted a substantial likelihood of additional waves of the outbreak in the near to medium-term. The FED said that they would continue to monitor public health information as well as global developments and muted inflation pressures in assessing outlook but even after social distancing rules were lifted consumer spending was not likely to return quickly to normal levels. Gold is trading at 1737.00 while USDJPY is trading at 107.720. The Japanese 225 closed lower by 0.21%.

This morning Flash Services and Manufacturing PMI data will be released across Europe. Numbers are expected to show an improvement from last month’s figures. In the afternoon US Unemployment Claims are expected to come in at 2.4M from 2.98M last week. US Flash Services and Manufacturing PMI data are also expected to improve.



The USDJPY has sold off again after it found resistance at the 111.700 level with a move that took price down to 107.000 area at the end of March. The pair then continued the move lower to test support around 106.000 and is now trading at 107.700. In the short term the move higher in March has been retraced by about 50%. The 107.700 area is being tested and this area may turn this level into resistance. A failure to break above this area may open the way to the 107.00 area followed by 106.000. Below this a loss of the 105.500 area, might lead to further selling taking hold and pushing price into the support area around the 105.200 mark followed by the 105.000 round number. The selloff in August found support at 104.450 and produced the rally to the current high at 112.228 and this area may play a part as support.

In the short term the 107.700 area is now acting as resistance, followed by 108.000, with the 108.480/108.500 area above. A rally above the 108.500 level may seek to take price up to engage the 109.400 area of the lower high which is followed by the 110.000 round number. This area has acted on price in the past and was retested as resistance in February, with a breakout to the high at 112.227. A break above this area may open the path to the pair potentially attempting to gain a foothold above this resistance and establish a base to engage the 113.000 area. A break above this level may seek to test the 114.000 level followed by the potential resistance at 115.000.



The EURGBP chart is showing that the pair has broken down from 0.9500 level and is currently trading around 0.8985 after finding support at 0.8670. The pair traded up to the 0.9500 area and found resistance in March. The move lower found some support at 0.9000/0.9070, but this failed at the end of the month and the area has now become resistance. The pair is testing the resistance of the 0.8865 area which formed double bottom, and a break higher may lead to a retest on the 0.9000 area. Support may develop at 0.8900/0.8890. Further support at 0.8813 is followed by the 0.8750 area and the 0.8700 level. A loss of this level may push price down to 0.8660 level. Support may be seen at 0.8645 followed by 0.8620/0.8600. Below this level, the 0.8500 area may be supportive again, followed by the 0.8412 area. The low at 0.8276 from December and then the 0.8250 level may also be used as potential support for the pair.

The 0.8900 area may be tested as resistance, where price found support in March. The pair has broken out of the trading range from 0.8685 to 0.8865. The break out higher has tested the 0.8910 level and price is pushing ahead towards the 0.9000 round number. The 0.9072 area may also be resistive to any advance higher. Above this area the 0.9250 area comes into play followed by the August high around 0.9323. The current high at 0.9500 remains the level to beat for buyers. A break higher may seek to test the 0.9550/0.9560. Beyond this the potential resistance area at 0.9620 might be used ahead of the 0.9700 level. The next area of interest may be found at 0.9720, followed by 0.9750 which may also be used as resistance to any potential move higher, while above the area the 0.9800 area may further resist attempts to push price up to the 0.9900 level. The round number level may also come into play at 1.0000.

Phillip Konchar

Core Spreads

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