Daily Market Pulse

Traders await Powell’s speech this week


The USD is mixed this morning, falling a bit against the EUR and GBP while strengthening against the JPY and CAD. U.S. stock futures are higher this morning after setting records yesterday. DOW Futures are showing a positive open for this morning’s market of around 140 points, with NASDAQ and the S&P 500 poised to trade higher as well. Investors continue to have confidence in the US economy and the progress of the virus vaccines. Virus cases in the US are dropping as data shows that new cases fell below 37,000 and have been below 50,000 since mid- August. The market will be focusing today on the Consumer Confidence release which is expected to improve to 93 in August from 92.6 in July. Traders continue to focus on the Jackson Hole Symposium set for later this week and what exactly will be said by Fed Chairman Jerome Powell. According to analysts, Mr. Powell is set to deliver a profoundly consequential speech, changing how the Fed views inflation. One phrase Powell is likely to use is "average inflation targeting", which means the Fed, which has pegged 2% as a healthy level, will let inflation run higher than that for a while if it has spent a considerable time beneath that level. The Fed’s preferred inflation gauge has stayed below that level for all but two years since the Great Recession ended in mid-2009. Today and tomorrow, there will be more speculation as to what the speech will include which could keep markets a bit jittery for the next 48 hours. U.S Treasury yields are higher this morning, as investors look towards Thursday’s meeting. The 10-year note rose to 0.6607%, while the 30-year bond was higher at 1.3623%. The equity markets may continue their move higher, which could weigh on the USD.


EUR/USD is trading higher this morning, boosted by German second-quarter GDP and the German IFO Business Climate report. Technically, the EUR is trading above the 50 and 100-day moving averages and looks to test resistance at the 200-day moving average level. Good numbers from Germany have seen increased EUR buying and the RSI has moved to 66 in early European trade. One positive development for the EUR is Germany's upward revision of its Gross Domestic Product figures for the second quarter. According to the final read, the continent's largest economy’s GDP fell by 9.7% and not 10.1% as originally reported. Adding to the EUR's positivity, the German Ifo Business Climate Index rose to 92.6 in August from the 90.5 previous in July and surpassed consensus estimates pointing to a reading of 92.2, which remained supportive for the single currency. Traders will be cautious to add positions ahead of the Jackson Hole Symposium, but there is a positive feel for the EUR at the moment. Rising coronavirus cases remain a concern, as doubts about returning to school creep in which could be the one factor that weighs on the EUR. The EUR could move higher as positive news is outweighing the negatives for the time being, but the hesitation by the market implies that any adverse development (COVID-19 related) could push the EUR lower.


GBP/USD is higher in trading this morning, as optimism about a coronavirus vaccine is seen as more positive than the continued lack of movement in Brexit negotiations. Currently trading between the 50 and 100-day moving averages, the pound seems primed to test resistance at the 200-day moving average level. RSI is trending upward currently at 61. Coronavirus developments have been positive, with England and Wales reporting the lowest number of COVID-19 deaths in 21 weeks. When it comes to cases, the UK is also doing better than many peers, as the larger European countries are seeing increasing infection rates. Hopes for a vaccine are also high, as Pfizer hopes to produce millions of doses before the end of the year. Nevertheless, the latest round of inconclusive Brexit talks last week, and the lack of any progress since then is expected to eventually weigh on the pound. The clock is ticking toward year-end and investors are beginning to factor in the risk of a no-trade-deal exit, which is considered unfavorable for the UK economy.


USD/JPY gains traction for the third consecutive session amid receding safe-haven demand. A strong pickup in the US bond yields provided an additional boost and remained supportive. Technically, the currency pair has broken through resistance levels and is trading above the three moving averages, as the latest move has taken out some stop-loss buying points and the RSI is well over the overbought 70-level, currently at 83. We may see some retracement as traders look at some profit-taking later in the day. Concerns remain over the health of Japanese Prime Minister Abe, who is reportedly getting treatment for a chronic illness. Trader response is always to sell the currency when there are concerns about a possible change in the government. As this remains an ongoing event, it may continue to weigh on the JPY.


USD/CAD is trading higher this morning, amid mixed oil prices that are being determined by storm-driven output reductions. The currency pair is currently trading above the moving averages, as both the 50 and 100-day have crossed the 200-day. RSI is pretty neutral at the 50-level. Brent crude oil futures added $0.05, rising to $45.18 per barrel, while U.S. West Texas Intermediate crude was down $0.09 falling to $42.53 per barrel. Oil production was cut at U.S. Gulf Coast oil refineries ahead of the rare double storms that were expected in the region. According to the economist’s expectations, the Canadian GDP report due out on Friday will show a contraction of a record 36.3% in the second quarter. This will certainly weigh on the loonie as the full brunt of the pandemic is now affecting the Canadian economy. The movements this week in USD/CAD will continue to focus on the oil markets and the sooner output goes back to pre-storm levels the better it will be for the Canadian dollar.


Mexico is organizing a workgroup in charge of the supervision and compliance with regulatory requirements for the joint production of a Covid-19 vaccine with Argentina, the Ministry of Health reported. The entity indicated in a press release that the purpose of the group is to guarantee rapid access to the potential vaccine against Covid-19 developed by the University of Oxford and the AstraZeneca pharmaceutical laboratory. It reported that in this regard, a first working meeting was held with the Federal Commission for the Protection against Sanitary Risks (COFEPRIS) and Alfredo Rimoch, general director of Laboratorios Liomont, a company that will participate in the manufacturing process, specifically, the final packaging of the doses. The Argentinean laboratory MABXIENCE will be in charge of manufacturing the active substance of the vaccine, as part of the collaboration agreement between AstraZeneca and the Slim Foundation. The head of COFEPRIS, Jose Alonso Novelo Baeza, the president and manager of Regulatory Affairs of AstraZeneca, Sylvia Varela, among other health officials and businessmen, also participated. Mexico is urgently looking for a vaccine and to this end, its participation in numerous candidate projects for the biological agent is coordinated with Russia, China, and the United States, as well as four of its projects with national universities. The deaths of Covid-19 in Mexico rose to 60,480, but if unclassified deaths are added, the figure would rise to 62,241 with the total confirmed cases reaching 560,164, the Public Health Ministry stated.


There was a significant positive development on the China-US trade front. US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He held a phone call and both concluded they made progress and that there is more to come. Heightened rhetoric between the world's largest economies has been under the radar, but investors are content as long as the Phase One accord remains intact. Both sides have said that they remain committed to taking steps necessary to ensure the success of the agreement. Adding to this positive tone, President Trump refrained from criticizing Beijing on the first night of the Republican convention. Keeping the topic off the agenda also helped improve the market mood and could be positive for the USD.


Brazil’s economy fell 9.4% under the impact of the coronavirus outbreak in the country during the second quarter, the worst three-month period ever, a Reuters poll showed. Economic activity began to stir again after President Jair Bolsonaro launched fiscal spending to deal with the aftermath of COVID-19, but optimism has been dented by fears this approach could derail his original austerity agenda if kept for too long. Brazil has registered more than 3.6 million cases of the virus since the pandemic began, the world’s worst coronavirus outbreak outside the United States. The latest gross domestic product (GDP) data, due for release September 1, are set to start up a raging debate about the extent of a vast initiative that is quickly eroding the stance of Economy Minister Paulo Guedes, a Wall Street favorite. The soaring budget deficit has stoked concerns among economists, whose warnings are adding pressure on a government already facing criticism for its handling of a health crisis that has cost almost 115,000 lives. The Brazilian real was sent into a tailspin last week on reports that, instead of realigning the budget, officials may scrap a key spending rule that is widely seen as a cornerstone of fiscal policy. The rule is likely to be broken in 2021, putting Guedes in a difficult spot. Last week he said he had Bolsonaro’s support amid rising speculation that political demands for more spending could force him to quit.


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