Kiwi Under Pressure, While EUR/USD Upside Requires Holding Above 1.125

Enthusiasm in the market still seems to struggle, and I'm sure investors are finding it is equally challenging to sustain their keenness.  Cases of coronavirus continue to surge across the US and with this rise comes fears that the second wave will test the market's sentiment and conviction. That being said. Asian stock markets are trying to keep above the zero mark, with Shanghai Composite and Sydney up.

Currency Markets

With improving activity data giving the People's Bank of China room to consider less easy monetary policy, China-US rates spreads are near decade highs. This policy divergence, receding risks of a trade war escalation, and short market positioning bode well for CNH in the near-term.

EUR/USD traded higher, receiving a boost from the announcement of the in-person EU leaders' summit on July 17 and 18. The move was also helped by positioning being much lighter after last week's sell-off where most of the euro bulls had thrown the towel. Ideally, the EUR/USD would need to hold above 1.1250 now to keep the upside momentum going. 1.1350, where it topped on Tuesday is the first resistance, after that 1.1400/20 where it topped earlier this month.

NZD/USD was under a bit of pressure into the RBNZ decision and slipped from 0.6495-0.6450 as the central bank remained on hold and highlighted that "the strength of the NZD is also viewed as a headwind." The RBNZ left the door open for additional stimulus and further rate cuts. After touching the lows, NZD erased most losses and sharply rebounded to 0.6487-90 before consolidating a touch. There is a definite selling bias in NZD with volumes up 50% on the day as longs are getting trips, but the easiest and safest way to express a bearish Kiwi view is through long AUD/NZD if one is so inclined. 

The RBNZ left door open negative rates as well as a platter of other policies, but a word of caution about paying the tops. The more the central bank talks about other policy options, the less chance there is of a negative OCR. Buying foreign bonds and term lending to banks are the alternatives that would likely be more effective than taking the OCR negative. 

The Bank of Thailand sees a huge contraction at 8.1% for 2020 versus 5.3% in its previous forecast, while its core inflation forecast is left broadly unchanged at 0.0% (versus -0.1%). Clearly, the strength of the THB is a headwind for external demand, especially the tourism sector  USD/THB is so far unmoved but look for the BoT to at least talk down the THB over the near term. Sticking with the crosses the long SGD/THB now looks good in this light.