Currency View by OFX

Last week’s news

• The European Central Bank (ECB) has moved to a recovery management phase, as it was decided that no action was required during the July meeting last week. Market participants will now be raising expectations for September’s ECB meeting. So far, ECB policy makers haven’t agreed on whether they expect to use the full 1.35 trillion-Euro fund.
• China’s economy returned to growth in the second quarter, GDP grew 3.2%. The positive data followed the first annual decline in decades for China in Q1 2020, when GDP fell 6.8%. Despite the rise in GDP, Chinese stocks dropped as the consumer side of the economy has not picked up as well as the industrial side. Retail sales fell 3.9% in the second quarter and unemployment was still at 5.7%.
• The U.S recorded more than 70,000 new infections in a single day, led by Texas and Florida which recorded more than 10,000 new cases each. Anthony Fauci, the US’s leading infectious disease expert, called the uptick ‘quite disturbing’. He added that a handful of state authorities dismissing federal guidelines and reopening their state economies too quickly has had an impact.

Looking ahead

• Although it’s been closing higher for the last 4 weeks, the AUD has been trading on a small range for some time now. This week could bring potential catalysts like the Government sharing more details around the extension of support for small businesses hurt by the virus or the almost A$2bn expiring in FX options at 0.6915 on Wednesday. Also, RBA Governor will give an online speech on Tuesday following the RBA minutes release and keep an eye on the number of cases in VIC and NSW.
• It looks like the Euro bulls are trying to push the EUR/USD pair to the 1.1495/1.15 technical level, last seen back around March 10th. Despite remaining divisions between the “Frugal Four” and Southern states over the details of the coronavirus pandemic fund, some think there might be consensus by the end of July.
• There are a few data points or events to move the Euro and Pound this week; for instance, a fifth round of talks between the EU and the UK to discuss their relationship post-Brexit. On Thursday, GfK market research company is due to report on consumer confidence in Germany, plus July’s Eurozone ‘flash’ consumer confidence number. We’ll get purchasing managers’ indexes on Friday.
• Leveraged funds reduced their net-short positions on the British pound to the lowest level since May, according to data from the Commodity Futures Trading Commission for the week through July 14th. AUD long positions rose to its highest since March 2018.

Key market events this week

• JPY Inflation Rate YoY (Jun)- Monday
• RBA Minutes of Jul Policy Meeting Published- Tuesday
• CAD Core Inflation Rate YoY (Jul)- Wednesday
• AU Government Economic Update- Thursday
• GBP Retail Sales MoM (Jun)- Friday
• EUR, GBP & USD Markit Services PMI (Jul)- Friday