Daily Currency Update

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Second wave concerns impact markets

USD - United States Dollar

Investors reacted to bad news out of China, where some monthly indicators were weaker than expected, and a potential second infection wave is being report. The same holds true in the US and markets continued to sell off profits from the previous three months.

Market participants rushed to haven currencies last week after the US surpassed 2 million Covid-19 cases and new hot spots appeared across the country. There is a sense that the battle against Covid-19 will continue well into 2020 and most likely 2021 as appetite for social distancing and economic lockdown restrictions falter.

Haven currencies such as the Swiss Franc and the Japanese Yen ended higher, benefiting from the shift in risk sentiment. The Japanese Yen gained +2% versus the US dollar, +3.23% versus the Loonie, +2.28% versus the Euro, +3% versus the Pound, and +3.5% versus the Aussie dollar. It was also a similar story for the Swiss Franc that rallied 1.03% versus the US dollar and 2.6% versus the Aussie dollar.

Key Movers

The “implied volatility” that comes from sophisticated financial instruments (such as options with an expiration in 6 months, around the US presidential election) has been increasing for the AUD/USD and NZD/USD pairs, rising for the eighth consecutive session, the highest in over two months.

According to data from the Commodity Futures Trading Commission for the week through June 9, sophisticated market participants (i.e. hedge funds and speculators) expanded their net-long position on the Euro (the most bullish since May 2018). At the same time, net-long positions on the Yen dropped to the lowest level since March and speculators increased their net-short on the US dollar. Net shorts on the Australian dollar, British Pound, and the Loonie declined.

Expected Ranges

USD/CAD: 1.359 - 1.368 ▼

EUR/USD: 1.123 - 1.128 ▲

GBP/USD: 1.245 - 1.257 ▲

USD/AUD: 1.456 - 1.473 ▲