IFX Market Report: Friday 14th August 2020

Yesterday saw the dollar claw back some of its losses from this week as an intraday spike in the US Treasury bond yields helped relieve some pressure. After the 10-year bond auction succeeded and pushed bond yields down, the US’s 30-year debt issuance yesterday resulted in higher returns, pushing the yield higher (and the greenback with it).

Another driver of the dollar yesterday was the better than expected weekly Jobs report. Early afternoon we saw the US Initial Jobless claims drop below 1M in the week ending 7th August. This is the biggest decline in the report since the beginning of the pandemic and given that in late July we saw a 10% increase, this news can be deemed as extremely positive for the US recovery. The increase in unemployment claims was forecasted to continue in the final week of the month, however claims dropped by 17% to 1.191M on 31st July. Claims then fell again the week 7th August by 19.1% to 0.963M – their lowest level since the pandemic began.

The focus for USD today will be the Retail Sales for July, and August’s Michigan Consumer Sentiment. Over the months of March and April the US Retail Sales fell by 22.9%, only to retract those losses, gaining 18.2% in May and 7.5% in June – 25.7% combined. Given that the US economy is centred on consumption, the 1.9% forecast for July would be very welcomed should it come in.

Despite the positive data, what is weighing on the dollar is the continued stalemate in the senate over a fiscal package. To add insult to injury, Republican and Democrats are now also arguing over funding to the US Post Office Service. The USPS is essential for guaranteeing a quick count of mail-in votes, and President Trump openly came out yesterday saying he opposed providing additional money to help deliver mail-in ballots. The POTUS noted that “if we don’t make a deal that means they don’t get the money. That means they can’t have universal mail-in voting. They just can’t have it.”

Cable was able to test the 1.31 range yesterday – GBPUSD started the session trading at 1.3063, and after peaking at 1.3125 mid-afternoon, the pair closed the session off at 1.3081.

As for GBP/EUR – now back in the 1.10 territory, opened the session yesterday at 1.1049, before closing off just above at 1.1068. With Brexit talks set to resume on Tuesday (18th) we can expect to see some volatility depending on the news released.

The continued deadlock in the senate has enabled EURUSD to hold above the 1.18 mark. Ahead of the Eurozone Q2 GDP release at 10:00, EURUSD opened the trading day yesterday at 1.1822, closing the day off a fraction below at 1.1818.

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