Marius Paun | London, UK | Senior dealer | Friday 17th July 2020
Euro Strength Ahead of G10 Summit Next Week
Optimism seems to be growing for the progress on the European Recovery fund, which has led to the Euro strengthening against most of the major currencies, trading as high as 1.145 against the US Dollar towards the end of the week. The G10 summit, which starts today (and finishes over the weekend), could set the tone for price action next week. If negotiations appear to be on the right path, and many observers are talking about when and not if a compromise is found, the Euro against the US Dollar could well test the 1.15 level, heights seen briefly in March this year, but not traded at with any conviction since summer 2019. Similar price action can be seen on the Euro against the Japanese Yen, after the BOJ meeting this week which kept all existing policy measures unchanged. 123.00 being the important level to watch here. To counter this, the recent weak sentiment in Chinese equities could limit gains on the Asia FX markets.
In US Equity markets, the current earnings season will switch from major banks to the tech giants. Until now the equity markets have been more sensitive to the recent Covid-19 outbreaks and geopolitical tension, but focus could centre on the magnitude of the economic recovery, both for the stock markets and the safe-haven status of the US Dollar.
In the UK, both Bank of England Governor, Bailey, and the Prime Minister, Johnson, have tried to calm market fears. Bailey led with committing to keep markets stable via his QE package, whilst Johnson made encouraging noises around containment of the virus through targeted lockdowns and encouraging business and office workers to return to the workplace in an attempt to boost the economy
In China, to add to the problems in the region, Wuhan and surrounding provinces were hit with a particularly rainy summer season, causing them to raise red alerts earlier in the week, as the floods brought disruption across the countryside and further impact on businesses. Morgan Stanley estimated the floods could lead to a drag of between 0.4% and 0.8% on China’s Q3 GDP growth, due to the already stretched supply chains being disrupted further
Gold had a quieter week, although it did manage to hold on the impressive gains of last week. The price continues to hover around (and mostly above) the $1800 reached recently. Market speculators continue to eye the $1900 levels, although they may need some fresh impetus to encourage new buyers to the party.
Oil markets also had a quiet week with US Crude sitting just above the $40 a barrel level, this despite the expiry of the futures contract at the end of this week. So it would seem some sense of normality has resumed around the storage and delivery of oil, coupled with a slow increase in the demand, which has led to this current status quo.