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Market watch - 3rd August 2020

USD

The Greenback had a weak July. The combination of the pandemic, non-agreement of the latest stimulus package from Congress and a belligerent President pushed it lower. Unemployment claims also moved higher for the last two weeks and investors when buying US Treasuries are now getting less money back than invested, when considering inflation. People are starting to question the dollars ability to be the World’s reserve currency. However, it is often darkest before dawn and the technical picture is starting to show the possibility of at least a correction higher for the dollar in the short term. Congress could still agree a new stimulus package to provide a safety net for millions of Americans as their rent payments fall due. This Friday is important with Non-farm payrolls data due for release. After June’s amazing 4.8 million new jobs, we expect 1.5 million new jobs to be have been made in July.

CAD

Canada is on holiday today so trading may be light. However, it is interesting that even though the US dollar had a bad week last week against its peers, the CAD was not able to breach its recent low at 1.3315. The oil price stayed firm but if 1.3315 holds then we could possibly see the start of a US dollar rally from here. Canadian employment data is released on Friday and is the main event.

EUR

EURUSD traded above 1.1900 late last week before falling back on month and week end sales below 1.1800. It is a light week for eurozone data, with only PMI released on Monday and Wednesday. However, that doesn’t mean we won’t see any movement as the dollar will provide momentum. On a technical basis, EURUSD is due for a correction and so we could see a weaker EURUSD in the short term. However, medium term studies suggest that the EURUSD trend higher is still in force.

GBP

GBPUSD strengthened 6% in July on US dollar weakness rather than sterling strength. It stayed supported against the euro despite the positive eurozone news. This could see sterling move under its own steam as we have the release of Services PMI on Wednesday, the Bank of England (BoE) interest rate decision and monetary policy report on Thursday. The Monetary policy report is the renamed inflation report and could be important. We don’t expect any change to interest rates from the BoE but the monetary policy report could move the market. If there is continued discussion around negative interest rates, then we could easily see the pound slip from its current levels.

RoW

The AUD continued to strengthen against the US dollar last month but could struggle in the start of August. The Reserve Bank of Australia sets interest rates on Tuesday and although we expect no change, the market will be watching to see how dovish the RBA Governor Lowe is. The news that the State of Victoria is back on total lockdown is also a negative and we should remember that the AUD has already appreciated around 20% in the last three months.

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