Friday August 14th, 2020

The US Senate breaks without a relief deal, the US$ index extends its losing streak, US vaccine hopes, and Chinese data falls short of expectations. The US Senate went into recess until September 14th, meaning a relief stimulus deal is likely weeks away at best. The US$ index remains under pressure, its losing streak extends into an 8th week, its worst performance since 2010. The US National Institute of Allergy and Infectious Diseases said that it will start preparations for human trials of a covid-19 vaccine. Chinese economic recovery remains slow with July retail sales falling -1.1% y/y, extending its fall into a 7th month. CNY weakens slightly on the retail sales news but is still up 0.35% in August vs US$. Investors remain cautious ahead Sino/US phase-1 trade review on Saturday as tensions between the world’s two largest economies remain high. Currency markets are relatively stable as they await the release of the US Retails sales data and the Michigan Consumer Sentiment Index results today.

Oil prices slip on demand concerns echoed by IEA revision forecast for oil demand in 2020 and alongside rising OPEC output in August. Oil prices remain steady, but are expected to drop by 10% over the coming quarter. C$ retreated from Thursdays 6-month highs of 1.3188, as oil prices concerns. C$ has rallied 1 ½% in August, alongside NOK they have been the best performing of the G10 currencies. Alongside Oil prices, a flurry of US data releases this morning will dictate intraday direction. Support at 1.3188 (Thursday’s low), if breached expect 1.3120 (Jan 23rd low), with resistance at 1.3235.

Euro continues to trade within its recent trading band but has retreated to the lower end of the trading range ahead of US retail sales. Short-term trading has been driven by the weaker US$ as the US battled without success to secure the next round of relief stimulus. Rising coronavirus cases in the EU are causing concerns to investors capping Euros attempts to rally. European GDP data met expectations while employment fell more than expected. The market will now wait for US data releases to provide direction. The lack of Euro momentum suggests room for a fresh round of Euro selling. Support at 1.1700 with resistance 1.1850 if breached a retest of 1.1915 (Aug6th high).

GBP holds steady vs US$ ahead of US data releases and next week’s UK inflation and retails sales figures. Markets are expecting weak data out of the UK next week which could prompt further loosening by the BoE. The UK PM is looking to unwind lockdown restrictions in the North of England as virus infections are leveling off. The UK is technically in a recession after a 20% in GDP in Q2/20, with possible ending of the furlough scheme in October its expected unemployment spike causing further economic pressures. We remain bearish GBP with initial support 1.2965 with resistance at 1.3130 (Mar20 highs).