Currency View by OFX

Last week’s news

• Bloomberg USD index decreased to a seven-month low while another USD Index, the US DXY (Dixie) reached a 22 month-low, despite the last two days of risk aversion.
• I Gold spike continued and it is only 1% away from an all-time high set 9 years ago (in 2011). The acceleration in the price of gold has been driven by lower interest rates, diversification and potentially inflation expectations.
• Following China’s decision to close a US consulate in Chengdu in response to the US decision to shut China’s consulate in Houston triggered a sell-off in Chinese equities on Friday. The CSI Index felt more than 4%, weighting on risk sentiment across the board. The interesting fact was that the USD didn’t act as a safe haven, probably due to the increase in COVID-19 cases within the US, which is putting pressure on interest rates.
• The EUR got a boost from the European Union’s deal on the 750-billion-Euro economic recovery fund but equities in Europe also closed in the red. The EUR reached levels not seen since 2018, helped by the Euro recovery fund and flash PMIs starting to show a recovery in both manufacturing and services for July.

Looking ahead

• Based on the latest drop in US yield, it seems the market is pricing a dovish Fed. Chairman Powell will hold a press conference on July 29th after the Fed’s two-day meeting. So far, the market expects rates to be near zero through 2022. Of course, any deviation from this extreme expectation would be a surprise on the ‘hawkish side’ and will bring support to the USD. Keep an eye USD to cover their short positioning ahead of the Fed announcement this Wednesday.
• Friday looks a bit hectic with China official PMI data for July and Europe’s GDP and CPI figures. The EUR has been trading strong on the back of the Euro recovery fund news and positioning and the cross is currently testing the important 1.17 level after spiking trough the 1.1650 resistance level on Asian trading on Monday.
• In the US, market participants with be following the latest developments around the new fiscal package negotiation. The current support is due to end on July 31 and republicans and democrats have been involved on heated debates to define the details of the extension. We’ll also get FED meeting on Wednesday and GDP on Thursday, plus several tech companies reporting earnings including Facebook, Apple and Amazon.

Key market events this week

• USD Durable Goods Orders (Jun) – Monday
• USD Consumer Confidence (Jul) – Tuesday
• USD Richmond Fed Manufact. Index (Jul) – Tuesday
• AUD CPI Q2 – Wednesday
• G USD FOMC Rate Decision (Upper Bound) – Wednesday
• AUD Building approvals (Jun) – Thursday
• USD GDP Annualised QoQ – Thursday
• China Manufacturing PMI (Jul) – Friday
• EUR GDP Q2 – Friday
• EUR CPI MoM (Jul) – Friday
• GBP House Prices MoM (Jul) – Friday
• CAD GDP MoM (May) – Friday