(26 MAY 2020)DAILY MARKET BRIEF 2:dollar Down on improved risk appetite

Released this morning, the Gfk German consumer climate printed a slightly lower figure than expected in June, but the kneejerk retreat in the euro remained almost imperceptible. The single currency is capable of pulling out 1.0932, the 100-day moving average resistance, but the battle against the 1.10 offers will be fierce, as the 200-day moving average has been a solid trigger for sellers since March. Furthermore, the euro is a less preferred refuge for risk averse investors, especially given the controversies at the heart of the EU regarding the size and the form of a fiscal stimulus package targeting the coronavirus-led economic slowdown, and the European Central Bank’s (ECB) potentially diminished firepower to act as a safety net if things don’t work out well with the ‘frugal four’. The single currency should remain fragile prior to the 1.10 mark before the ECB’s Financial Stability review today and Christine Lagarde’s speech on Wednesday.

Sterling on the other hand recovered above the 1.2220 mark against the US dollar, after buyers found a solid ground near the 1.2170/1.2160 area. Meanwhile, anger against Dominic Cummings choice to travel long-distance against law during the coronavirus lockdown is losing steam. Although divisive among Tories, the Cummings affair will certainly have no additional impact on the pound’s course, unless Johnson’s support to Mr. Cummings causes him a severer headache, which we doubt. Cable has room for further recovery to 1.2300/1.2355 (last week resistance / 50-day moving average) but offers will likely be felt stronger above this area.

Finally, WTI crude is preparing to test $35 per barrel on optimism that the worldwide business reopening should boost the basic energy demand and on news that Russia cut its oil production to nearly meet its 8.5-million-barrel per day target in May and June, after unwillingly agreeing to lower supply with other OPEC+ countries. Prospects of a sustainable global pick-up in demand and lower supply should continue giving support to oil prices, yet the $40 level will likely cap the upside potential due to rising trade uncertainties between the US and China.