05/ 08/ 2020

U.S. Dollar Resumes Slide, Taking Cue From Yields

The U.S. dollar resumed its slide on Tuesday in what may turn out to be a very short-lived recovery. There were no U.S. economic reports on the calendar, but 10-year Treasury yields resumed their slide, falling more than 6%, and driving the dollar sharply lower in the process. According to the Democrats, stimulus talks are finally moving in the right direction. Investors are nervous but also cautiously optimistic that Congress will reach an agreement in the very near future as they are fully aware of the urgency and consequences, which explains the rally in equities.

The euro ended the New York session within a few pips of 1.18, which is a significant move considering that it traded as low as 1.1721. Given the lack of Eurozone data, this rally can be attributed primarily to U.S. dollar weakness.  Sterling was the weakest currency. Investors are disappointed by the lack of progress in EU-UK trade talks and worried that service sector PMI will be revised lower tomorrow like manufacturing. 

The best performing currency yesterday was the Australian dollar. Not only did Australia's trade surplus increase in June, with exports and imports rebounding, but retail sales grew at a faster pace. The Reserve Bank of Australia has left interest rates unchanged, announced plans to step back into the bond market and predicted a bumpy uneven recovery.

It’s a busy day ahead, with service sector PMIs due out of the Eurozone and the U.S to influence. The U.S stimulus package will also be in focus.

 

21/ 07/ 2020

A Lack of Stats Leaves the EU Recovery Fund and COVID-19 in Focus

EU leaders are getting close finalizing the details of the EU recovery fund which has lifted EUR higher to levels not seen in four months. EU leaders have had talks over the last four days to determine the details of a stimulus package that will be worth 750 billion euros. One of the main sticking points for some has been that the package involves grants that do not need to be paid back, rather than the traditional method of issuing loans. Charles Michel, chairman of the EU summit said that discussions so far point to 390 billion euros worth of grants. Britain is likely to cancel its extradition treaty with HK, Prime Minister Boris Johnson and fellow Brexit supporters envisaged the UK striking independent trade deals with the wider world following the exit from the EU. However, worsening relations with the world's second-largest economy. Brexit talks are set to resume after several rounds of deadlocked talks. Both sides acknowledged that Brussels offered London concessions, but the UK says these are insufficient while the bloc states they have not been reciprocated. Low expectations for any breakthrough during the summer imply a limited downside for sterling – unless one side abandons the negotiation table. The good news comes from the medical front a British company, reported positive results for a cure for COVID-19. While a full examination of its treatment is still awaited, the announcement already triggered a triplication of its shares and UK authorities could fast-track its application. AstraZeneca, a large UK-based pharma firm, may announce results of another phase in its coronavirus vaccine candidate. The Lancet will likely publish an update later on Monday. Both developments are helping the pound and supporting the broader market mood. The Pound retained its gains after comments from BOE’s Haldane, who said that the UK’s recovery is still looking V-shaped, and the economy has clawed back about half the output it lost in March and April. He also said that policymakers would consider negative rates “if there was a further negative shock to the economy,” There are no material stats for the markets to consider, leaving the European majors in the hands of geopolitics and COVID-19 updates.

20/ 07/ 2020

Week Ahead | Focus Remains on Virus Spread, Fiscal Stimulus, Rebounding Data, and Earnings

The dollar was broadly lower on Friday as the euro rose to just under a four-month high, with negotiations underway between European Union leaders on a recovery fund that could lift the bloc out of the current recession. The Euro edged higher as markets have hoped for further progress on the European Union’s €750 billion recovery fund. As a result, EUR investors have become more optimistic that the Eurozone’s economy could be on the road to recovery.

EU leaders’ views on a mass stimulus plan remained “diametrically different”, Czech Prime Minister Andrej Babis said on Friday. The 27 EU heads are struggling to reach consensus on the 2021-27 budget, proposed at above 1 trillion euros, and a linked new recovery fund worth 750 billion euros, meant to help rebuild southern economies most affected by the pandemic. The Dutch believe all 27 member states need to agree on how the grants are distributed in the EU. The EU Summit is set to continue over the weekend and maybe more details will emerge tomorrow.

Sterling fell against the dollar as sterling was weighed down by Britain’s bleak economic outlook, Brexit uncertainties and the possibility of negative interest rates. Prime Minister Boris Johnson eased some lockdown measures on Friday, but also announced local authorities will have power to shut down smaller areas of the country if necessary. The pound did not strengthen on the news of fewer restrictions and remains the worst-performing G10 currency last week

It’s a busy week ahead, with Brexit, U.S-China tensions, the EU Recovery Fund, COVID-19, and July private sector PMIs in focus.

16/ 07/ 2020

Dollar Down, Rise in risk appetite over COVID-19 vaccine hopes

Risk sentiment revived in currency markets on Wednesday as progress toward a COVID-19 vaccine helped equities rebound and commodity currencies strengthen, pushing the dollar to a one-month low. The USD’s weakness was again attributed to the risk-on backdrop, which saw stocks and yields head higher, prompting the unwinding of safe-haven long USD positions. The surge in risk-taking came following news that Moderna’s experimental COVID vaccine looks promising.

Among the riskier commodity-linked currencies, the Canadian dollar, the Australian dollar and the New Zealand dollar was up. The euro rose to a four-month high versus the dollar, close to the euro-dollar's peak in early March. The single currency was boosted by a combination of dollar weakness and hopes that European Union leaders will reach an agreement about a proposed coronavirus recovery fund at the EU summit on Friday and Saturday.

It’s a busy day ahead for the European majors. COVID-19 updates, economic data, and the ECB are in focus throughout the day.