Euro & Dow Rebound Despite COVID Spike

06/30/2020 9:55 am EST

Focus: FOREX

Adam Button

Co-Owner and Managing Director,

Adam Button breaks down Monday’s market action as U.S. stock indices started to rebound.

A new record daily increase in the number of Covid-19 inflections and resurfacing political US-China tensions did not stop U.S. stock indices from rebounding, with the exception of NASDAQ 100, which is the only loser of the main 3 indices after Facebook (FB) and other info tech firms lost advertisers. 

The weight of growing Coronavirus cases sparked risk aversion on Friday and it's tough to envision anything changing in the near-term. The Dow Jones Index leads with 1.4% higher vs NASDAQs -0.4%. The euro is the strongest currency of the day and British pound (GBP) is the weakest.  Commodity Future Trading Commission foreign exchange positioning showed more bets on the Japanese yen (JPY).

U.S. Covid-19 cases rose another 1.7% on Sunday, above the 1.5% average. But it's a few hotspots that are concerning the market. Florida, Texas, Arizona and California all hit records in the past week and high frequency data is increasingly showing fewer restaurant visits and hours worked in those states, which collectively represent almost one-third of U.S. GDP. Formally, governors re-closed bars in Florida and Texas and cut restaurant capacity.

The mood on Friday slowly soured and that resulted in a 2.4% decline in the S&P 500 with a close below the 200-dma.

Monday, the DAX attempts to regain its 200-day moving average of 12152, the Dow managed to protect the 24070 base support (backed by 24830 confluence of 55- and 100-daymoving averages) and the gold-U.S. dollar trade remains underpinned at 1754, eyeing 1790. 

In the FX market, the reaction has been uneven. Risk trades in commodity currencies are playing out more clearly but elsewhere quarter and month-end flows are a factor. GBP is also suffering on the risk trade but Brexit news and a potential COVID-lockdown in Leicester are compounding worries.

Note that China was on holiday late last week but is back to start the new week.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR +118K vs +117K prior
GBP -19K vs -16K prior
JPY +27K vs +22K prior
CHF +1K vs +2K prior
CAD -21K vs -25K prior
AUD -5K vs -7K prior
NZD 0K vs -2K prior

After big moves into Australian dollars (AUD) and euro (EUR) last week, the shifts were much smaller in the last data. The lone notable shift was into JPY.

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