It’s going to be a rainy few days along the US east coast starting on the weekend. Hurricane Isaias is north of Cuba now and expected to track westward in the day ahead before turning north and scraping along the US east coast. Hardest hit will be north/central Florida but then it will work its way to New England over the next 4-5 days.
The NHC expects the storm to pick up in the near term:
Although some slight weakening has occurred, radar data from the
aircraft and the Bahamas radar indicate about a 60-percent
eyewall has formed in the northeastern semicircle, which is an
indication that the cyclone is trying to reorganize. As a result,
strengthening is still expected during the next day or so.
Overall, it doesn’t look like it’s going to be a notable event, except that it might spark some close-gathering and cause some testing lags for the virus. However it’s a reminder that hurricane season is just beginning. There are two other formations out in the Atlantic that the NHC is watching.
S&P Global Ratings announced on Friday that it affirmed its ratings of the European Union’s long-term foreign currency at AA and short-term foreign currency rating at A-1+ with a positive outlook, as reported by Reuters.
“EU’s outlook revised to positive on the EU’s central role in Europe’s recovery plans,” S&P Global Ratings explained.
This report doesn’t seem to be having a significant impact on the shared currency’s performance against its rivals. As of writing, the EUR/USD pair was down 0.17% on a daily basis at 1.1825.Full Article
Cases and positivity remain high but there are small signs of improvement everywhere it what looked like the state that was most out-of-control a month ago. Hospitalizations are falling slowly — and some of that is simply people dying — but they’re not being replaced with new patients.
By so many metrics, it looks like it was going to be much worse in Arizona than it’s been so far and that underscores how little we still know about the virus. It’s increasingly clear that case numbers are only catching a small portion of those who have contracted the virus.
“The advance estimate from the Commerce Department of real GDP growth for 2020:Q2, released on July 30, was -32.9%. The latest New York Fed Staff Nowcast for 2020:Q2 was -13.7%.”
“News from this week’s data releases increased the nowcast for 2020:Q3 by 3.5 percentage points.”
“Positive surprises from manufacturers’ shipments of durable goods, wholesale inventories, and personal consumption data drove most of the increase for 2020:Q3.”
The US Dollar Index paid little to no mind to this report and was last seen gaining 0.1% on a daily basis at 93.06.Full Article
The AUD/USD pair closed the first four days of the week in the positive territory and touched its highest level since February 2019 at 0.7228 during the Asian trading hours on Friday. Although the pair staged a technical correction and pulled away from its highs, it finished the sixth straight week in the positive territory and gained more than 4% in July.
The unabated selling pressure surrounding the greenback remained the primary driver of AUD/USD’s movements throughout the week. Earlier in the week, the Reserve Bank of Australia (RBA) announced that the Mean Consumer Price Index (CPI) in the second quarter dropped to -0.1% from 0.5% in the first quarter on a quarterly basis. Additionally, the annual rate slumped to 1.2% and came in lower than the market expectation of 1.4%.
Later in the week, the ANZ reported that its Business Confidence Index worsened to -31.8 in July and the Activity Outlook Index edged lower from -6.8% to -8.9%. Nevertheless, AUD/USD’s downside remained limited as the USD struggled to find demand.
After concluding its two-day meeting, the FOMC announced on Wednesday that it left its policy rate, the target range for federal funds, unchanged at 0%-0.25% as widely expected. In its policy statement, the FOMC repeated that it remains committed to using its full range of tools to support the economy. During the press conference, FOMC Chairman Jerome Powell noted that high-frequency macroeconomic data was pointing out to a slowdown in the pace of recovery since mid-June. However, Powell offered no fresh hints regarding the possibility of introducing yield curve control or negative interest rates.
Following the FOMC event, the USD started the day on a strong footing on Thursday and caused AUD/USD to slide toward 0.7100. However, the all-important growth data from the US didn’t allow the greenback to preserve its strength. In its flash estimate, the US Bureau of Economic Analysis reported that the real Gross Domestic Product (GDP) contracted at a record pace of 32.9% on a yearly basis in the second quarter. The 10-year US Treasury bond yield lost nearly 10% in the second half of the week and slumped to its lowest level since late April, forcing the USD to continue to suffer losses against its major peers.
Reflecting the broad-based USD weakness, the US Dollar Index (DXY) lost more than 1% on a weekly basis and touched its lowest level since March 2018 at 92.55.
On Monday, the ISM’s Manufacturing PMI data from the US will be watched closely by the market participants. The market expectation points out to a contraction in the manufacturing sectors’ economic activity with the PMI dropping to dropping to 48.4 from 52.6 in June. A worse-than-expected reading could revive concerns over a sluggish recovery and put additional weight on the USD’s shoulders.
On Tuesday, the RBA will announce its interest rate decision and release the policy statement. Earlier this week, Christopher Kent, Assistant Governor of the RBA, noted that the RBA was ready to buy government bonds if market conditions were to deteriorate significantly. Kent further added that he was not “overly concerned” about the AUD’s market valuation. However, with AUD/USD rising to its highest level in nearly 18 months and inflation dropping into the negative territory in the second quarter, the RBA could start voicing concerns over AUD strength and trigger a deep downward correction.
On Friday, the US Bureau of Labor Statistics will release its monthly employment data. Investors expect Nonfarm Payrolls (NFP) to increase more than 2 million in July. If the USD’s performance remains correlated with the US Treasury bond yields, a positive reading could help the DXY gain traction and weigh on the pair. On the other hand, a disappointing NFP could make it difficult for the USD to find demand as it would likely cause investors to start pricing additional Fed stimulus.
The RSI indicator on the daily chart rose into the oversold territory above 70 on Thursday and remained there despite Friday’s correction. The last time the RSI advanced beyond 70, on July 21st, AUD/USD erased more than 100 pips before pushing higher.
On the downside, 0.7100 (psychological level/July 23 low) aligns as the initial support ahead of 0.7060 (20-day SMA) and 0.7000 (psychological level). Resistances, on the other hand, could be seen at 0.7200 (psychological level), 0.7223 (Jul. 31 high) and 0.7300 (psychological level/Jan. 31, 2019, high).
Despite this week’s impressive gains, the FXStreet Forecast Poll shows that experts are bearish in the near- and medium-term. Both the monthly and the quarterly outlooks see the pair trading below 0.7000 with 81% and 69% of forecasts, respectively, being bearish. Meanwhile, the weekly outlook suggests that the pair could retreat towards mid-0.7100s.Full Article
Benefiting from the misery of others – there was nothing to support the pound, but the dollar’s weakness proved more influential. Will this trend extend or reverse? An updated view on the US labor market via the all-important Non-Farm Payrolls, the Bank of England’s rate decision, and coronavirus-related news is all of the interest.
Dollar down – that was the dominating theme in markets, and it had several drivers. The world’s largest economy has been showing more signs of weakness, and politicians have failed to agree on a new relief package – triggering a fiscal-cliff in special federal employment benefits.
US Gross Domestic Product plunged by 32.9% annualized, better than expected but still the worst in history. Perhaps the bigger blow came from continuing claims, which jumped to 17 million in the same week when Non-Farm Payrolls surveys are held.
The Federal Reserve preempted its scheduled meeting by announcing that some special lending schemes will be extended through year-end – showing the bank’s commitment to non-stop support for the economy
The Fed then announced its decision, striking a more dovish tone. Jerome Powell, Chairman of the Federal Reserve, said that high-frequency data is pointing to an economic softening since coronavirus cases began rising in mid-June. While he committed to doing whatever is needed, he was short on specifics, allowing the dollar to edge up.
It seems that Powell and his colleagues prefer Congress to lead – using their spending powers, which the Fed does not possess. Republicans and Democrats were at odds over further stimulus – especially the all-important federal unemployment benefits. Depressed US bond-yields – regardless of YCC – have also been weighing on the dollar.
Coronavirus statistics remained worrying, with daily deaths rising well above 1,100, while total mortalities surpassed 150,000. The determination comes alongside more hopes for a vaccine – Moderna is kicking off its Phase 3 trial, racing against AstraZeneca and the University of Oxford. That may have pushed the safe-haven dollar down – and it had already been unwinding the risk-aversion trade.
The UK COVID-19 situation remains under control, but the number of cases is rising once again and the government slapped restrictions on around. 4.3 million people in northern England.
That increase did not stop Prime Minister Boris Johnson from announcing several measures against European countries were infections are moving up – angering Spain in particular.
EU-UK Brexit talks remain deadlocked, and investors expect a breakthrough only closer to the deadline – the end of the year when the transition period expires.
Sino-British relations have not improved after the UK canceled the extradition treaty with Hong Kong. While the “special relationship” with America remains close – a breakthrough in trade talks is unlikely before next year.
Brexit breakthrough or breakdown of talks? None of the above, most probably. Reports suggest that both the EU and the UK are unlikely to move – nor abandon negotiations – during the summer. Any unlikely development would rock the pound.
The UK’s gradual exit from COVID-19-related restrictions is set to continue, but any flareups – as seen elsewhere – may weigh on sterling.
The main event of the week as the Bank of England’s “Super Thursday.” The BOE is set to leave its interest rate unchanged at 0.1% and the Quantitative Easing program at £745 billion. The focus will be on what makes it “super” – the Monetary Policy Report.
Andrew Bailey, Governor of the Bank of England, is set to hold a press conference and provide details on the current economic situation, growth prospects, and what the BOE is and is not ready to do. Some have expressed concerns about the bank’s independence – as it is financing massive fiscal stimulus.
Investors prefer any BOE help that would lower the government’s borrowing costs and support the recovery. With inflation out of sight, any distancing between the bank and the state would be seen unfavorably and could hurt the pound.
Apart from additional QE, investors will want to know where the BOE stands on negative interest rates. Bailey previously said the topic is under “active consideration” – pounding the pound – but later seemed to cool down to the idea. If any of his colleagues vote for a rate cut – or if he hints that option is on the cards – sterling could suffer.
Overall, the pound needs more QE and less talk of sub-zero borrowing costs to rise.
Here is the list of UK events from the FXStreet calendar:
Is the coronavirus curve flattening? Cases have stopped rising, but deaths are on a worrying uptrend. Figures coming out from Florida, California, Texas, and other states will probably move markets.
If the statistics worsen, that would adverse for markets – but could also push lawmakers in Washington to strike a deal and provide more help to the struggling economy. Both sides want to be seen as helping the public in an election year.
US politics: Joe Biden, the presumptive Democratic candidate, is set to announce his pick for a running mate during the week, spicing up the race. Recent opinion polls have shown that President Donald Trump has somewhat narrowed the gap, but he remains behind. Markets have yet to respond to the elections.
The US economic calendar is packed once again – with a full buildup to Friday’s job figures. The ISM Manufacturing Purchasing Managers’ Index for July provides the first clue with the employment component potentially outperforming the headline figure – the industry is less impacted by the resurgence of the virus.
Wednesday features ADP’s labor market report, which has been useful at pointing to the general trends – but its numbers have often been far from the official ones. America’s largest payroll provider will likely report a more modest increase in positions in July after printing 2.369 million in June.
The ISM Non-Manufacturing PMI has likely fallen in July as the services sector suffered both a loss of business and potential job contraction. The employment component will be of particular interest ahead of Friday’s figures.
While weekly jobless claims figures are for the weeks following the one in which the NFP surveys are held, they provide up to date data about the state of the labor market and have room to move markets.
Finally, the Non-Farm Payrolls report can go either way – a third consecutive month of job growth or a downturn. The chance of repeating June’s 4.8 million increase is meager. The same goes for the unemployment rate, which dropped to 11.1 in the previous month and may now move up.
Wage growth is set to remain elevated but will likely be ignored as it is skewed – many of the position losses were among low earners. On the other hand, the U-6 underemployment rate – aka the “real unemployment rate.”
The high level of uncertainty about July’s figures – the first full month after COVID-19 raised its head in mid-June – implies a strong reaction in markets.
Here the upcoming top US events this week:
Pound/dollar looks overbought – the Relative Strength Index on the daily chart is above 70, indicating a correction. Cable broke above the 200-day Simple Moving Average and benefits from upside momentum. It also smashed the long-term downtrend resistance line.
Some support awaits at 1.3015, followed by 1.3065, a peak that was hit in February. Lower, 1.2870, which was a cushion back in February. It is followed by 1.2815, June’s peak, and then by 1.2770, a stepping stone on the way up. The next lines so watch are 1.27, 1.2660, and 1.2540.
Resistance is at the recent swing high of 1.3145, followed by levels dating back to earlier in the year – 1.32 and 1.3270. Further above, 1.3390 and 1.3510 come into play.
This Schadenfreude – finding pleasure in the suffering of others – may come to its limits due to the rising UK curve, overbought conditions, and other factors.
The FXStreet Forecast Poll is showing a doubtful crowd – experts foresee a substantial drop in the pound, with a minor drop in the short term and a greater one later on. The bearish forecasts come despite an upgrade in the average targets.
Data released on Friday, regarding personal income and spending offers another tantalizing look at the rebound that might have been, explained analysts at Wells Fargo. They point out wages and salaries continued to rise, fueling strong spending.
“Personal income slipped 1.1% in June, a larger decline than had been expected. The absence of government stimulus checks was the key factor in the decline.”
“As businesses began re-opening in June, wages and salaries rose 2.3% and proprietors’ income shot up 5.5%.”
“The V-shape recovery has already come to real durable goods spending which rose another 8.8% in June pushing the level of outlays here further into record territory.”
USD/CAD and cable both made moves of around 40 pips at the London fix. It’s another reminder to be careful around the fix.
I’d expect the moves to fade but I’m reluctant to buy cable in the midst of an 11-day rally.
Florida’s Department of Health announced on Friday that the number of confirmed coronavirus cases in the state increased by 9,007 to a total of 470,386, as reported by Reuters.
Further details of the daily update revealed that COVID-19-related deaths rose by 257, highest daily increase since the pandemic started, to 6,966 and the hospitalizations decreased by 168 to 8,260.
The S&P 500 Index (SPX) edged lower after this report and was last seen losing 0.2% on a daily basis at 3,240.Full Article
Summer is about to become hotter – after a steaming hot weekend, pound traders are ready for more sweat around the Bank of England’s decision. While many are on vacation, the “Old Lady” as the bank is known is set to stir markets with its rate decision, meeting minutes – and the Monetary Policy Report, which makes it a “Super Thursday.”
GBP/USD has been on a tear, benefiting from the dollar’s weakness and shrugging off new lockdown measures in northern England, Brexit, and relations with China.
Will the BOE bail out the bears? The answer depends on three factors.
The headline above belongs to Andy Haldane, Chief Economist at the Bank of England. He said the recovery came sooner and faster than previously expected. One significant figure that has remarkably bounced back is retail sales, which are down only 1.6% year over year in June:
Does the BOE as a whole agree that the economy is bouncing back to normal? Even if British consumers are active, the UK also depends on exports – and the greater world is still struggling. Moreover, Prime Minister Boris Johnson announced a slowdown of the reopening, and that may also be factored by the bank.
The BOE is set to paint a mixed picture, but where will it lean-to? If Andrew Bailey, Governor of the Bank of England, paints a picture of cautious optimism, of a country emerging from the crisis, the pound could advance. Conversely, taking a page from the Federal Reserve’s book and saying that there are signs of softening, could cause suffering to sterling.
These quarterly reports feature growth and inflation forecasts – which are hard to produce with the fast-moving nature of the disease. The BOE may stress that its figures are only “scenarios” and not forecasts. Nevertheless, figures looking more like a V – or at least a tight Nike swoosh – could be positive for the pound, while a long recovery path could be detrimental to the currency.
Back in June, the BOE announced it is topping up the bond-buying scheme by £100 billion to a total of £745 billion. Members of the Monetary Policy Committee expressed willingness to continue supporting the government’s efforts to stabilize the economy and help it recover.
The bank’s balance sheet has jumped in recent months:
Source: Trading Economics
However, some expressed worries that the bank is turning into the financing arm of the Treasury – losing its hard-fought independence. While inflation remains low, direct monetary funding is frowned upon in various circles – yet not among investors.
Both in the UK and the eurozone, announcement of more money printing boosted the respective currencies as they implied more fiscal support.
After the recent addition, it seemed that the BOE is taking a break and said they are slowing down the pace. If Bailey surprises investors with a willingness to increase the plan, sterling could shine, while markets will likely shrug off a message of continuation.
Bailey dealt a blow to the pound when he said that setting negative rates is “under active consideration” – but since hinted such a move is not imminent. He slashed overnight borrowing costs to 0.1% – the lowest in the BOE’s 300+ years history – on his fourth day on the job in the turbulent days of March.
BOE interest rate:
However, the governor and some of his peers who also seemed to warm up sub-zero rates have since cooled down on the idea. Most of the stimulus coming from charging commercial banks to park money with the BOE comes from the effect on the exchange rate – a weaker pound would boost inflation and exports.
However, the overall effect on the real economy – as demonstrated by the eurozone and Japan – is minor. Moreover, it substantially hurts banks’ profitability – and that probably contributed to shelving the policy.
If the bank surprises by opening the door to setting negative rates – either by seeing one member voting for a cut or via a message from Bailey – sterling could stumble. As long as it remains only a theoretical option, it will likely be ignored by traders.
The BOE is set to leave its policy unchanged but its views on the economy will probably rock the pound. Additional QE could boost sterling while hints about sub-zero borrowing costs would send it lower.Full Article
Spain’s health ministry reported on Friday that the number of confirmed cases in the country increased by 1,525 on Friday.
Cumulative cases, which also include results from antibody tests on people who may have recovered, increased to 288,522 from 285,430, the ministry said, as reported by Reuters.
This reading was the third straight daily increase of more than 1,000 and marked the biggest daily jump in coronavirus infections since the lockdowns got lifted on June 21st.
The EUR/USD pair edged lower in the last hour and was last seen losing 0.22% on a daily basis at 1.1820.Full Article
Gold continued its march higher through July, with the spot price hitting a record high of $1,981/oz earlier this week. Strong safe-haven demand, falling yields, rising inflation expectations and a weak USD have all contributed to this move. However, further gains are reliant on investor demand, with consumer demand showing no signs of recovery. All in all, strategists at ANZ Bank see the yellow metal trading at $2,300/oz on a 6-to-12 month view.
“There is no doubt that the backdrop remains highly constructive, with negative real yields for the foreseeable future. We have subsequently revised up our 6-to-12-month target to $2,300/oz. Even so, we are mindful that if economic sentiment improves in coming quarters, the hurdle for continued growth in investor demand may make the path to this level an arduous one.”
“Bond yields and short-term interest rates should stay low in nominal terms and negative in real terms for the foreseeable future. This will continue to minimise the opportunity cost of holding zero-yielding gold. The expansion of the monetary base also re-kindles inflationary concerns.”
“We see geopolitical risks rising. US-China tension and Brexit talks are ongoing, while Middle East conflicts persist. This should keep safe haven demand strong.”
“The supply of USD and the scale of macro liquidity have the potential to keep the USD weaker. As a result, the current trends across our dashboard of economic indicators driving gold investment demand are all positive.”Full Article