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Market watch - 21st September 2020

The technical picture suggests that the dollar is trying to strengthen. However, it is not doing so across the board with USD/JPY lower, USD/CHF and EUR/USD trading in recent ranges and GBP/USD bouncing last week after the EU publicly announced its refusal to give up on a trade deal with the UK. US equity markets finished the week lower and the economic data is mixed at best with core retail sales weaker than expected, and the jobless claims continuing to be over 800k a week.

The US election is hotting up and the polls are narrowing as expected, but we have not seen another support bill from Congress and this is bad news for the economy. Fed Chair Powell testifies on Tuesday on the CARES act, so he may will be asking for more fiscal stimulus. For today there has been news of a last-minute deal regarding the Tik Tok app, of which China is reported to own still 80% of the company with the US getting a HQ and new jobs. The dollar has strengthened a touch on safe haven buying in European trading.
USD/CAD gained 0.5% on Friday, even though wholesale sales rose 4.3% on a monthly basis, being above the 3.4% expected. Core retail sales dropped 0.4% but headline retail sales gained 0.6%, so only a touch weaker than the 0.8% expected. We have the release of the National House Price Index today but, and on Wednesday parliament reopens with Prime Minister Trudeau presenting his new fiscal agenda.

EUR/USD has been treading water for the past two weeks after its foray above 1.2000. Wednesday sees the release of PMI data and the ECB economic bulletin on Thursday. The market is still bullish on EUR/USD after ECB President Lagarde said she wasn’t particularly concerned about its level. However, since she said this EUR/USD has not had the energy to move higher. The ECB has launched a review of their coronavirus support programme PEPP, with the market surmising that it could lead to more support for the Eurozone. The technical picture is a little unclear.
Last week the Bank of England took a very public step to introducing negative interest rates. There are plenty of reasons why they would do this. The UK economy has been hit harder than other economies by Covid-19, although it is trying to recover the government is stumbling over its response to the pandemic and we have the end of the furlough scheme at the end of October. Also, the fall out continues over the UK government possibly intentionally breaking international law.

The EU is of the opinion that unless the internal market bill is changed dramatically or dropped, they will be unable to agree a trade deal with the UK. BoE Governor Bailey speaks on Tuesday and Thursday with Manufacturing and services PMI’s released on Wednesday to give an indication of the state of the economy. Today’s news sees the UK government considering the possibilities of another national lockdown to stop the latest increase in Covid-19 and the pound has been sold in European trading.
Last week’s RBA meeting minutes kept the AUD supported as members noted that the economic downturn had not been as severe as expected earlier, with a recovery now under way in most of Australia. The market will now look to RBA Deputy Governor Debelle on Tuesday for further elaboration on the economy and monetary policy. His speech is followed by questions, so it could be a market mover. The Turkish lira continued to decline across the board as the market loses confidence in the Turkish authorities, and interest rates are not high enough to keep the lira supported.

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