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Initial claims and GDP due out today

USD

As expected the FOMC concluded their meeting yesterday and kept interest rates unchanged. According to the post-meeting statement, “Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year.” At his post-meeting press conference, Federal Reserve Chairman Jerome Powell said, “We are committed to using our full range of tools to support our economy in this challenging environment,” Officially, the Fed kept its rate targeted in a range between 0-0.25%. It was last this low during the Great Recession. In the post-meeting statement, it was noted that the “path of the economy will depend significantly on the course of the virus.” In his post-meeting press conference, Chairman Powell stated that. “It’s just such an important sentence, we decided it needed to be in our post-meeting statement,” He added, “It’s so fundamental.” As the Fed announcement was released, the USD remained under pressure from major currencies, while the stock market gained 160 points. Earnings week continues and Thursday has Apple, Amazon, Alphabet, and Facebook are all scheduled to report after the closing bell. These earnings reports could create so serious after-hours trading volatility which could lead to trading on Friday. US Initial Jobless claims are due out before the bell at 8:30 today and the forecast is for 1.51 million people will have filed for unemployment in the week ending July 25. This is up from last week’s 1.42 million. US 2nd quarter GDP is due out this morning and is expected to contract 34.1% on an annualized basis. The economy contracted 5% annually in the 1st quarter. This move in the GDP would be the largest drop on record. The range on the drop runs from 22.5%-40.0%. The fact that the US shut down the economy in March and April due to the corona pandemic has seen the most severe contraction in GDP since the Great Depression of the 1930s. The USD is lower against the GBP this morning but is doing a little better against the EUR, JPY, and CAD. DOW Futures are trading lower this morning, indicating a drop of around 250 points when the markets open. This could change as jobless claims and GDP will be released at 8:30 am. US Treasury yields are lower this morning, following the Fed’s action yesterday, with the 10-year note trading at 0.5708%, and the 30-year bond trading at 1.2286%. These economic numbers are often overstated and if that occurs, we could see a positive move in the USD, but overall pressure remains.

EUR

EUR/USD is trading slightly lower this morning after German GDP fell worse than expected to 10.1% in the second quarter. The expected number was -9.0% and last quarter was revised to -2.0%. The single currency had hit a two-year high yesterday and some profit-taking has seen it trade off a bit, but traders still have a buying interest. Momentum on the technical charts remains positive and the RSI is trading around the 50-level. German unemployment numbers were better than expected as those unemployed dropped by 18,000. Analysts seem confident that the worst days of coronavirus are behind Europe and the continent seems to be getting back to normal. At the moment it seems as though all the “bad” news is coming from the US and the EUR has benefitted from a dovish Fed, rising US weekly unemployment, and the resurgence of the pandemic in America. The market mentality at the moment would seem to brush off any positive US data and allow the EUR to continue to move higher.

GBP

GBP/USD reached a 4 1/2 month high on Wednesday before easing back on some profit-taking. Technically, the pound remains poised to move higher as it trades above the moving averages and the RSI level remains around 58. An announcement is expected today regarding self-isolation in case of coronavirus situations occur. The government is expected to announce a 10-day quarantine period as opposed to the present 7-day quarantine period. Apart from the quarantine restrictions, there is nothing new to report regarding the UK. Brexit talks remain stuck and as the days slip away, the thought of a “no-deal” Brexit becomes more of a reality. Relations with China remain tense and the recovery of the economy remains fragile. Positive USD news would seem to affect the GBP more negatively than the other currencies and market reaction to the US GDP release could GBP more than the other currencies. 

JPY

USD/JPY has traded quietly overnight, with a slightly “bid” tone, but that seems to be more of a reaction to EUR/JPY and GBP/JPY moving higher than to any USD movement. Technically both crosses look well supported and can probably test higher levels. After the Fed meeting, USD/JPY looks poised to move lower as analysts note that the Fed announcement included a “virus-dependent” outlook for the US economy. Moving averages are trending lower and RSI level has fallen overnight, currently trading at 50. The Japanese Cabinet Office announced a sharp downward revision to GDP forecasts today, saying they now expect the economy to shrink 4.5% during the fiscal year ending March 2021, compared with an earlier forecast from January forecasting 1.4% growth. This would be the biggest contraction since data became available in 1994. The report also stated a second large-scale breakout of the coronavirus could move these numbers to 5%. Expectations are for the economy to rebound with 3.4% growth in the next fiscal year ending March 2022. USD/JPY seems to have ignored the negative Japanese news and remains poised to test lower levels based on economic news coming from the US.

CAD

USD/CAD is trading higher this morning as moving averages converge and the 50-day moving average is about to cross the 100-day moving average on the topside. The currency pair is about to break some resistance levels and “stop-loss” buying seems to be aiding the move higher. Lower oil prices overnight are also adding to the loonie’s woes. Brent crude futures fell $0.07 to $43.68 a barrel, while U.S. West Texas Intermediate crude futures fell $0.06 to $41.21 a barrel. A global resurgence of viral infections has traders concerned about fuel demand as the major oil producers are set to raise output in August. Concerns regarding possible lockdowns if infections increase has traders concerned. Transportation accounts for two-thirds of oil demand. US economic releases today will dictate the direction of the USD/CAD, but with short-covering still occurring, the USD/CAD should trade higher. In the time I have been wiring this RSI has jumped 10 points and is now trading just below 70 at 67.

CNY

UK-China relations top the news this morning, as the Chinese ambassador to the UK, Liu Xiaoming, has been quoted this morning he regrets the relationship with the UK has run into a series of difficulties, but that the UK needs to take full responsibility for these difficulties. He accused the UK of meddling in Hong Kong affairs, undermining the stability of Hong Kong. There has been no reaction from the UK government to this point, but this is something that should be watched moving forward. In other China-related news, Commerce Ministry spokesman Gao Feng said “China’s trade environment is still beset with severe challenges and that China will roll out new policies to support trade”. Analysts remain concerned over the future of US-China trade talks, as risk sentiment continues to rise and could affect the global equity markets.

Quick Insights

USD: Q2 GDP expected to fall 34%.

USD: Q2 GDP expected to fall 34%.

EUR: EUR higher as German unemployment improves.

EUR: EUR higher as German unemployment improves.

GBP: GBP reaches 4 ½ month high yesterday.

GBP: GBP reaches 4 ½ month high yesterday.

JPY: Cross selling pushes USD/JPY higher.

JPY: Cross selling pushes USD/JPY higher.

CAD: Lower oil prices push loonie lower.

CAD: Lower oil prices push loonie lower.

CNY: UK-China relations flair up over Hong Kong.

CNY: UK-China relations flair up over Hong Kong.

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