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Market watch - 13th July 2020


President Trump may get his way over a weaker dollar. However, it could come at the cost of equity weakness and a continuing economic slowdown. The interest rate differential between the dollar and its peer group is very much reduced, and, with markets forward looking, they have to price in the fact that the US will not emerge first from the pandemic but possibly last. US Services PMI is still below 50 and showing contraction, while unemployment claims were still 1.3 million last week. There is also news that the US shale industry is now seeing a net outflow of investment with the recent oil price collapse and pipelines not being opened as expected. This week we have CPI, industrial production and retail sales for release. It may be that the US is starting to slip behind its competitors.


Last Friday’s employment data saw 953k new jobs added to the economy in June and helped support the CAD. This week, the main event for the CAD will be the Bank of Canada meeting on Wednesday. We expect no change, but it will be interesting to hear what the new Governor Macklem has to say after the meeting. USD/CAD is at an important juncture at the moment. There is the possibility of the low being confirmed at 1.3315 if price breaks important resistance levels. 


This week could be a pivotal week. The ECB meeting on Thursday is expected to yield no change to interest rates. However, we do expect ECB President, Lagarde, to give more reassurances that the ECB will provide more support if needed. Friday sees the start of the EU summit, which will be dedicated to trying to find agreement on the support package, and the new EU budget. It is unclear whether the EU will be able to reach agreement on the support package, but if they do, then this will be very positive news for the euro. Last week saw France and Italy post excellent industrial production (IP) data on a monthly basis. France increased its IP by around 20%, while Italy saw it leap higher by 42%. The European Union, although hit hard by the pandemic, has managed to get the initial spike under control. Although there have been smaller outbreaks of the virus in recent weeks, these have also been controlled, and the fundamental picture is starting to favour the euro.


Bank of England governor Bailey starts and ends the week of events, as he speaks today and Friday. Some analysts are conjecturing that he will prepare the market for the possibility of negative interest rates. So, his comments will be closely inspected. We then have the release of GDP on Tuesday, CPI on Wednesday and average earnings on Thursday. This week, we also have various Cabinet ministers talking about the plans for Brexit. Foreign exchange is a relative game. While conditions may not be rosy for the UK, we can see the US struggling even more with the pandemic. US bank results this week will show just how badly they have been affected. This could encourage GBP/USD buyers. However, if the EU does actually agree, or look like agreeing its support package, this could encourage GBP/EUR sellers.


The AUD managed to stay steady last week. Positive news on the Chinese economy supported it, whilst the US dollar stalled. This week we have NAB business confidence for release on Tuesday with last month’s reading -20. Thursday sees employment data due with the market expecting an improvement on the 227k jobs lost in May.

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