IFX Market Report: Monday 17th August 2020

Once again, the focus going into this week is dollar weakness. As we start the week GBPUSD is trading above 1.31, and EURUSD is trading over the 1.1850 mark.

The main driver of the greenback’s frailty is the lack of development on the latest US fiscal stimulus package. On Thursday, the US Congress suspended talks for the COVID-19 stimulus package and left for a month-long recess. Unless negotiators come to an agreement in the meantime, the Senate will not return this month, fuelling concerns about the economic damage caused by the pandemic.

On Friday, cable started the session trading at 1.3055, before climbing above the 1.31 mark, closing the day off at 1.3106.

EURUSD also managed to make some ground on a depreciating dollar. The pair opened the day just below 1.18 at 1.1792, only to go on and finished the session at 1.1831.

On Friday we also had some key data releases from the US in the form of Retail Sales and (prelim) Michigan Consumer Sentiment. Although on the surface Retail Sales came in below expectations, recording a growth of 1.2% (forecasted 1.9%), if you look closer into the report, sales excluding autos increased 1.9% MoM and the Retail Sales Control Group edged up to 1.4%, beating both estimates. The Michigan Consumer Sentiment was also better than anticipated, forecasted at 72.8, came out at 72.5. Despite the ‘somewhat’ upbeat tone from these releases, they evidently did little to impact the dollar’s performance.

With Brexit talks set to resume between the UK and EU tomorrow, any news leaked or released will be sure to impact the markets. Sentiment has been improving on this front, with Britain’s chief negotiator David Frost noting last week that a Brexit agreement can be reached by September. Yet, even taking this into consideration, history has proved it doesn’t take a lot for these negotiations to sour.

With a potentially volatile week ahead, GBPEUR opened the session on Friday at 1.1070, before closing just above at 1.1077.

On the data front, it is a quiet schedule today, with only a few US second tier releases of note (but unlikely to be market-movers). Looking ahead to this week however, markets will be focused on Wednesday as we have July’s Inflation Rate from the UK, followed by Core Inflation from the Eurozone for July; finally in the evening we have the Minutes from the latest FOMC meeting.

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