Friday July 31st, 2020

Weak US economic data, stimulus uncertainty and surging coronavirus cases are the key factors driving the US$ weaker. Yesterday’s Q2 US GDP result was the weakest quarter since the great depression, which caused the US$ to extend its selloff. The US$ in now on-track for its biggest monthly decline in a decade, down over 4% MTD. Despite positive rhetoric to extend the federal unemployment benefits the Dems/Reps have yet to reach any agreement on the next round of stimulus relief. Ongoing covid surge in the US with 21 states in the “Red-Zone”, 3-days of +1,000 deaths and the fed commenting the virus is its primary worry for longer-term economic recovery. The currency markets response appears to be divided by their trading relationship with the US with Eur up 5.5%, CNY up 1.3%, GBP up 5.9%, Cad up 1.1% vs US$ index down 4.6% (1-year down 5.6%). Another busy day for US$ data and sentiment releases which will provide intraday direction.

Oil prices bounce off yesterday’s lows and is on track to post positive gains for July, boosted by a weaker US$ but capped by demand concerns. C$ slipped quickly from its highs yesterday on rising US economic concerns. Oil prices remain steady providing support for C$, but the loonie’s strength remains capped as its primary trading partner continues to battle with surging covid-19 cases. Canadian GDP (MoM) will be announced today, which will be watched closely for direction alongside a flurry of US data releases. Support holds at 1.3365 with resistance at 1.3480.

The Euro consolidates after testing a fresh 2-year high (1.1908) overnight, but the sentiment remains overall bullish for Euro. We may see some further intraday Euro selling on end-of-month investor adjustments, which may produce fresh buying opportunities. US$ will drive direction today, investors will focus on the US data & sentiment releases will be watched closely. Support rises to 1.1805 with the next key resistance at 1.1996 (May2018).

GBP continues to shrug off negative data and extends its rally to +4-month highs on the back of a weakening US$. The UK announced new lockdown measures on 4.3mio brits based in the northwest of England. Our bias is that Brexit, Sino/UK tensions and now rising covid cases may be the final straw to stall the GBP’s rally. Support rises 1.3010 with resistance at 1.3155.