Market Brief, Tuesday, 25th of August, 2020
Global indexes posted substantial gains, with the rally attributed to encouraging news coming from the US that the food and drug administration has approved convalescent plasma to treat severe coronavirus cases. EUR/USD and GBP/USD posted modest intraday gains but closed the day with losses, not far from last week’s lows.
The US dollar remains under pressure with unemployment benefits expiring and manufacturing activity in the NY and Philadelphia slowing down. Considering that the Fed has no plans to raise interest rates for the next year, the market will focus its attention this week to Federal Reserve Chairman Powell’s speech and the announcement of a potential inflation target. Revisions to Q2 GDP will also be on the agenda along with personal income and spending.
EUR/USD which yesterday rejected 1.1850 level will be back in focus today with the German IFO report and revisions to their Q2 GDP scheduled for release. While investor sentiment improved, PMIs were weaker, a sign that the Eurozone economy is also losing momentum. This suggests that tomorrow’s German IFO report could decline which may turn EUR/USD’s pullback into a deeper correction. Furthermore, COVID -19 infections in Europe are currently on the rise and the concern of a second wave could underpin the EURO even more.
The British government is struggling to control COVID-19 – and how to reopen schools. Prime Minister Boris Johnson has reportedly taken over education policy after a messy week around exam scores suggesting confidence is lowering in overall government policy.
Another precipice the UK could figuratively fall off is Brexit. Another round of talks has ended without progress. The mutual announcements are sent sterling down on Friday and continue weighing on it. The transition period expires at year-end and talks could come down to the wire. Overall, GBP/USD has failed to benefit from the dollar's weakness and may fall once the greenback stabilizes.
Gold fell modestly on Monday after being unable to hold onto gains and following recovery of the US dollar during the American session. The ounce peaked at $1,962, but it quickly turned to the downside.
WTI Failures above $40 and break below support open risk back to test the prior resistance set in April of this year some $10 lower from today.
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