Kathy Lien | Jul 21, 2020 04:01
This new trading week kicked off with broad-based gains for currencies. Every major currency pair, from EUR/USD to USD/JPY, moved higher as vaccine progress and stimulus talk sparked optimism. Investors were encouraged by the positive response from the vaccine developed by Oxford University and AstraZeneca (NYSE:AZN). In their early stage human trial with more than 1,000 participants, it was found that the vaccine produced antibodies and killer T-cells that can last at least two months with no serious side effects. There are more than 100 vaccines being developed worldwide with at least 23 in human trials. As the positive news flow continues so does hope that we’ll have a vaccine by the end of the year. A vaccine would be a game-changer for the markets that could lead to big gains for currencies and equities, but distribution will become an immediate question and concern.
Another U.S. stimulus package will also provide short-term relief for the forex market. GOP leaders met with White House officials today to discuss, including payroll tax cut and direct payments. The urgency is high as extra unemployment benefits expire at the end of this month. Many economists fear that an income cliff will lead to a spike in bankruptcies and a drop in spending. With no major U.S. economic reports on this week’s calendar, earnings, vaccine and stimulus headlines will drive FX trade.
Meanwhile, the EU Summit and its decision on a massive coronavirus stimulus package was the main focus. Talks between European leaders continued for a fourth day and they are getting close to a deal. Commission President Ursula von der Leyen said they are entering a crucial phase in the talks, and things are moving in the right direction. However, there’s still significant resistance from the frugal four who feel that it changes the complete fabric of the EU. They prefer more repayable loans rather than grants with terms and restrictions. So far, an agreement has not been reached, but if its achieved, EUR/USD will hit 1.15. However, if the talks break down, the euro, which has been in a consistent uptrend this month, will sink in disappointment. The best performing currency today was sterling. There was UK economic data but improvements are expected in this week’s retail sales and PMI reports.
All three commodity currencies also gained strength versus the greenback. NZD led the gains, which is no surprise given the consistent improvements in New Zealand data and the successful containment of COVID-19. They reported only one case yesterday. Like the manufacturing sector, the service sector returned to growth in the month of June. The PSI index jumped from 37.5 to 54.1, its highest reading since January. Tonight’s credit card spending data should show similar improvements. The Australian dollar will be in focus tonight with the RBA minutes and speech by RBA Governor Lowe on the calendar. The government will also be releasing its first economic and fiscal update since the coronavirus outbreak. Earlier this year, the country was at the cusp of eliminating COVID-19 but it is now seeing a surge in new cases that have led to border closures and fresh stay-at-home orders. The RBA won’t be happy with this trend as the return of restrictions curbs economic activity. The Canadian dollar, on the other hand, is rising ahead of Tuesday’s retail sales report. With employment recovering strongly, retail sales are expected to rebound sharply in May. The 1.35 level is key support for USD/CAD, good numbers combined with risk appetite could drive the pair through this level to fresh one-month lows.
Written By: Kathy Lien
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.
More content, faster quotes and charts, and a smoother experience is available only on the App.