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Market Report – Confidence in the US outlook remained fragile on Monday

Posted: 28th July 2020

Trade Ideas & Daily market report July 28th 2020

Market highlights.

EUR/USD

The German IFO economic confidence index strengthened to 90.5 for July from 86.3 the previous month and was above consensus forecasts of 89.3. The current conditions component strengthened to 84.5 from 81.3, slightly below market forecasts, while the expectations index strengthened to 97.0 from 91.6.

Markets remained uneasy over the risk of coronavirus spikes within Europe, although overall single-currency sentiment held firm.

In its monthly report, the German Bundesbank stated that the economy declined sharply in the second quarter with the fastest rate of decline since at least 1970. The evidence suggest that the economy overall bottomed out in April while industry recovered from May. The bank expects that the economy will continue to recover during the second half of the year, especially in view of the fiscal stimulus and the weekly activity index has continued to show a net improvement in conditions.

US durable goods orders increased 7.3% for June after a revised 15.1% gain the previous month and marginally above consensus forecasts. Underlying orders increased 3.3%, slightly below market expectations. The Dallas Fed manufacturing index improved slightly to -3 for July from -6.1 the previous month. Expectations over the outlook remain strong, but eased slightly from June levels.

The dollar overall remained firmly on the defensive with a slide to 25-month lows amid a lack of confidence in fundamentals and EUR/USD strengthened to 22-month highs around 1.1780 before a slight correction. Markets maintained expectations of a very accommodative Federal Reserve policy at Wednesday’s policy meeting and dovish forward guidance. The dollar recovered slightly on Tuesday with EUR/USD retreating to the 1.0730 area, but underlying US sentiment remained weak.

USD/JPY

Underlying geo-political concerns continued to underpin the Japanese yen during Monday with a particular focus on persistent US-China tensions.

US fiscal policy remained an important market focus during the day with reports that the Republicans would propose to cut weekly Federal unemployment benefit to $200 from $600. Senate Republicans announced a $1.0trn support package including a cut in unemployment benefits until a new targeted system is introduced by states which replace 70% of previous wages. There were further concerns that partisan disagreement would delay approving any fresh support measures

US equities remained in positive territory, but US yields moved lower and the dollar was unable to make any headway as USD/JPY dipped to 4-month lows near 105.10.

The US recorded a small slowdown in the number of new coronavirus cases on the day, although this is often the case after a weekend and the data on Tuesday will be watched closely. Asian equity markets were able to make limited gains and USD/JPY secured a tentative recovery to the 105.60 area amid a wider correction.

Sterling

There were reported comments from EU Chief Negotiator Barnier that he believes UK Prime Minister Johnson wants a deal and he is confident that a balanced deal is possible, although it might be less ambitious. There will be further speculation that the UK and EU will eventually reach a minimal free-trade deal to avoid major disruption and continue with trade talks next year. Any deal would provide an element of relief, but uncertainty will remain very high.

Global market conditions continued to dominate Sterling with GBP/USD taking advantage of a weak US dollar to post 4-month highs at 1.2900 before a slight correction. EUR/GBP posted net gains on the day, but failed to hold its best levels and settled around 0.9130.

Overall confidence in the UK economic outlook remained fragile, especially with further uncertainty over the UK travel sector and underlying weakness in confidence.

The Lloyds business barometer recovered to -22 for July from -30 the previous month with all sectors registering a net gain on the month.  EUR/GBP edged lower on Tuesday to near 0.9120 while GBP/USD found support near 1.2850 as markets monitored global market moves.

Swiss franc

Swiss sight deposits increased to CHF692.6bn in the latest week from CHD691.5bn which suggested only limited National Bank intervention during the week. Global market trends tended to dominate during the day as volatility increased.

The Swiss currency retreated sharply during the day with EUR/CHF strengthening to 6-week highs around 1.0840 before a correction. The franc was unable to gain significant support from the fresh gains in precious metals, in contrast to developments seen on Friday and also underperformed against the Japanese yen. USD/CHF was able to consolidate just below the 0.9200 level after touching 5-year lows and edged higher on Tuesday.

AUD/USD + USD/CAD

The Australian dollar took advantage of US currency weakness during Monday and AUD/USD advanced to highs near 0.7150, although it under-performed the Euro slightly.

There were no major domestic developments on Tuesday with AUD/USD posting a 15-month high at 0.7180 before a retreat to near 0.7130 as the US currency recovered some ground.

The Canadian dollar also drew support from US weakness with net gains in oil prices also providing fresh impetus during the day and USD/CAD retreated to re-test support near 1.3350.

The pair corrected slightly to the 1.3170 area on Tuesday as global trends dominated and the US currency attempted a limited recovery.

NOK+ SEK

The Norwegian krone weakened slightly on Monday as markets fretted over global coronavirus trends, although the main impetus came from Euro gains.

EUR/NOK strengthened to highs above 10.70 and the pair traded just above this level on Tuesday as the krone was unable to gain any traction.

Underlying Norwegian retail sales increased 5.7% in the year to June from 2.8% previously, but EUR/NOK held just above 10.70 with USD/NOK around 9.13.

The Swedish krona secured limited net gains on the day with EUR/SEK settling around 10.28 on Tuesday with USD/NOK around 8.76.

Equities

Euro-zone equities were unable to make any headway on Monday despite a more positive German business survey as market unease over coronavirus developments. A stronger Euro also triggered some concerns over the earnings outlook.

The German DAX index closed unchanged on the day while the Spanish IBEX index declined 1.7% amid fears over the tourism sector.

Major UK stocks were undermined by fresh concerns over the leisure sector amid fears that further travel restrictions could be imposed. Despite gains in commodities, the FTSE 100 index closed 0.3% lower.

US equities were able to post net gains with expectations of a very accommodative Fed policy continuing to provide underlying support. Despite unease over fiscal developments, the S&P 500 index gained 0.7% with futures slightly higher on Tuesday.

Asian equity markets were able to secure limited gains amid reservations over the global environment.

Japan’s Nikkei 225 index declined 0.3% despite a slight dollar rally with the Australian ASX index surrendering gains and closing 0.4% lower as precious metals corrected sharply.

China’s Shanghai index posted a 0.3% gain in late trading with a 0.35% advance for Hong Kong’s Hang Seng index.

Commodities

Oil prices were hampered by unease over global demand trends in light of the further overall increase in coronavirus cases.

There was protection from a weak dollar and expectations of extremely accommodative global central bank policies with choppy trading during the day.

WTI dipped to near $40.50 p/b before a rally to near $42.0 p/b with consolidation near $41.50 p/b on Tuesday with Brent just below $44.0 p/b.

Overall demand for precious metals remained strong on Monday with demand triggered by on-going dollar weakness and fears over global geo-political tensions with a particular focus on US-China relations.

Gold hit a marginal fresh record high during the day before correcting slightly.

Silver continued to trade near $24.50 per ounce at the New York close.

Precious metals surged in Asia on Tuesday with gold strengthening sharply to record high at $1,980 before correcting sharply to $1,940 in early Europe amid pressure for a stronger correction with a further spike in volatility.

Silver jumped to 7-year highs around $26.25 per ounce before correcting sharply to near $24.50.

Cryptocurrencies

Cryptocurrencies maintained a strong tone into Monday’s European close with further support from the weaker dollar

The bitcoin advanced to the $10.400 area and then jumped higher with a peak near $11,000 as gains in gold also provided strong underlying support.

There was further strong buying at the Asian open with bitcoin at 11-month highs above $11,400 before a correction to $just below $11,000 as the dollar corrected slightly.

After strong gains over the weekend, Ether under-performed relative to bitcoin during Monday and prices retreated to near $310. There was buying on dips with stabilisation around $320 on Tuesday.

Calendar

Major events for the day ahead: (times in BST)

11.00: UK CBI retail survey

15.00: US consumer confidence

02.30 (Wed) Australia consumer prices

Swiss sight deposits increased to CHF692.6bn in the latest week from CHD691.5bn which suggested only limited National Bank intervention during the week. Global market trends tended to dominate during the day as volatility increased.
The Swiss currency retreated sharply during the day with EUR/CHF strengthening to 6-week highs around 1.0840 before a correction. The franc was unable to gain significant support from the fresh gains in precious metals, in contrast to developments seen on Friday and also underperformed against the Japanese yen. USD/CHF was able to consolidate just below the 0.9200 level after touching 5-year lows and edged higher on Tuesday.
AUD/USD + USD/CAD
The Australian dollar took advantage of US currency weakness during Monday and AUD/USD advanced to highs near 0.7150, although it under-performed the Euro slightly.
There were no major domestic developments on Tuesday with AUD/USD posting a 15-month high at 0.7180 before a retreat to near 0.7130 as the US currency recovered some ground.
The Canadian dollar also drew support from US weakness with net gains in oil prices also providing fresh impetus during the day and USD/CAD retreated to re-test support near 1.3350.
The pair corrected slightly to the 1.3170 area on Tuesday as global trends dominated and the US currency attempted a limited recovery.
NOK+ SEK
The Norwegian krone weakened slightly on Monday as markets fretted over global coronavirus trends, although the main impetus came from Euro gains.
EUR/NOK strengthened to highs above 10.70 and the pair traded just above this level on Tuesday as the krone was unable to gain any traction.
Underlying Norwegian retail sales increased 5.7% in the year to June from 2.8% previously, but EUR/NOK held just above 10.70 with USD/NOK around 9.13.
The Swedish krona secured limited net gains on the day with EUR/SEK settling around 10.28 on Tuesday with USD/NOK around 8.76.
Equities
Euro-zone equities were unable to make any headway on Monday despite a more positive German business survey as market unease over coronavirus developments. A stronger Euro also triggered some concerns over the earnings outlook.
The German DAX index closed unchanged on the day while the Spanish IBEX index declined 1.7% amid fears over the tourism sector.
Major UK stocks were undermined by fresh concerns over the leisure sector amid fears that further travel restrictions could be imposed. Despite gains in commodities, the FTSE 100 index closed 0.3% lower.
US equities were able to post net gains with expectations of a very accommodative Fed policy continuing to provide underlying support. Despite unease over fiscal developments, the S&P 500 index gained 0.7% with futures slightly higher on Tuesday.
Asian equity markets were able to secure limited gains amid reservations over the global environment.
Japan’s Nikkei 225 index declined 0.3% despite a slight dollar rally with the Australian ASX index surrendering gains and closing 0.4% lower as precious metals corrected sharply.
China’s Shanghai index posted a 0.3% gain in late trading with a 0.35% advance for Hong Kong’s Hang Seng index.
Commodities
Oil prices were hampered by unease over global demand trends in light of the further overall increase in coronavirus cases.
There was protection from a weak dollar and expectations of extremely accommodative global central bank policies with choppy trading during the day.
WTI dipped to near $40.50 p/b before a rally to near $42.0 p/b with consolidation near $41.50 p/b on Tuesday with Brent just below $44.0 p/b.
Overall demand for precious metals remained strong on Monday with demand triggered by on-going dollar weakness and fears over global geo-political tensions with a particular focus on US-China relations.
Gold hit a marginal fresh record high during the day before correcting slightly.
Silver continued to trade near $24.50 per ounce at the New York close.
Precious metals surged in Asia on Tuesday with gold strengthening sharply to record high at $1,980 before correcting sharply to $1,940 in early Europe amid pressure for a stronger correction with a further spike in volatility.
Silver jumped to 7-year highs around $26.25 per ounce before correcting sharply to near $24.50.
Cryptocurrencies
Cryptocurrencies maintained a strong tone into Monday’s European close with further support from the weaker dollar
The bitcoin advanced to the $10.400 area and then jumped higher with a peak near $11,000 as gains in gold also provided strong underlying support.
There was further strong buying at the Asian open with bitcoin at 11-month highs above $11,400 before a correction to $just below $11,000 as the dollar corrected slightly.
After strong gains over the weekend, Ether under-performed relative to bitcoin during Monday and prices retreated to near $310. There was buying on dips with stabilisation around $320 on Tuesday.
Calendar
Major events for the day ahead: (times in BST)
11.00: UK CBI retail survey
15.00: US consumer confidence
02.30 (Wed) Australia consumer prices