EUR/USD is trading around 1.1750, marginally higher. The safe-haven dollar is under pressure amid an upbeat market mood. The German ZEW figures were mixed. Coronavirus figures are falling in the US and rising in Europe.
Trading on key Forex news: we are expecting the publication of important macro statistics from the US, Australia, New Zealand, Eurozone, Japan, Canada, as well as the results of the meetings of the RBA and Bank of England.
The dollar continued to decline last week. The DXY dollar index updated June 2018 lows, falling to 92.52.
European stock indices also ended last week in the negative territory, while American indices rose.
Last Wednesday, the leaders of the American central bank confirmed their readiness to keep rates near zero and buy Treasury bonds and a number of other securities, doing everything possible to support the economy in the context of the crisis caused by the Covid-19 epidemic. “The trajectory of the economy will be highly dependent on the trajectory of the virus,” said Fed Chairman Jerome Powell, adding that “this is very fundamental.”
Amid pessimistic investor sentiment and soft policies from the Fed and other major global central banks, the gold price hit record highs last week, rising to $1,983.00 an ounce.
The focus of investors next week will be on the publication of data from the US labor market, as well as the results of the meetings of the central banks of the UK and Australia.
Investors focused on the deteriorating epidemiological situation in the United States, weakening demand and high unemployment.
Investors will also pay attention to the publication of several important macro data on the US, Australia, New Zealand, Eurozone, Japan, and Canada.
Traders should pay attention to the following significant macroeconomic data expected next week:
* during the coming week new events may be added to the calendar and scheduled events may be canceled
** GMT time
Monday, August 3
14:00 USD ISM Manufacturing Employment Index. ISM Manufacturing PMI
Employment Index, an important indicator of US economic conditions, is published by the Institute for Supply Management (ISM) and reflects business conditions in the US manufacturing sector, taking into account expectations of future output, new orders, stocks, employment, and supply. The ISM Manufacturing Employment Index is considered an important leading indicator in the US Department of Labor’s employment report. A high index value strengthens the USD, while a low value weakens it. In May, the value of the indicator was 32.1, in June 42.1. Forecast for July: 34.4.
The growth of the index is a positive factor for the USD. However, the index is significantly lower than the average annual values, and in the current conditions of the coronavirus pandemic and continuing quarantine, another decrease in the index is possible, which will negatively affect the dollar.
The Institute for Supply Management (ISM) Manufacturing PMI is an important indicator of the health of the American economy as a whole. A result above 50 is seen as positive and strengthens the USD, one below 50 as negative for the US dollar. Forecast: 48.4.0 in July (against 52.6 in June, 43.1 in May, 41.5 in April, 49.1 in March, 50.1 in February). The relative decline in the index may negatively affect the dollar, while the value of the index itself is still below 50, which may also negatively affect the dollar. Data below 50 indicates a slowdown in activity, which negatively affects the quotes of the national currency. If the indicator grows above the forecast and the value of 50, the dollar will receive more tangible support and is likely to strengthen.
Tuesday, August 4
00:30 AUD Retail Sales Index
The Retail Sales Index is published monthly by the Australian Bureau of Statistics and measures total retail sales. The index is often considered an indicator of consumer confidence and reflects the health of the retail sector in the near term. Index growth is usually positive for the AUD; a decrease in the indicator will negatively affect the AUD. The previous value of the index (in May) was +16.9% after falling by -17.7% in April. If the June data turn out to be weaker than the previous value, the AUD may sharply decline in the short term. Forecast: +2.4%.
This indicator measures the ratio between Australia’s export and import volumes. Growth in exports from Australia leads to an increase in the trade surplus, which has a positive impact on the AUD. Forecast for June: A$8.763 billion (previous A$8.025 billion). The growing trade surplus is likely to have a positive impact on the Australian dollar.
04:30 AUD Interest rate decision. Accompanying statement of the RBA
In March, the RBA made 2 rate cuts, bringing it to the current level of 0.25%, and launched a quantitative easing program. At the same time, for 3-year government bonds of Australia, the target yield level is set at 0.25%. The RBA has launched a program of lending to the banking system in the amount of at least A$90 billion and intends to buy bonds for A$5 billion.
The negative forecasts of economists suggest that the Australian economy will contract by 6% in 2020, which will be the sharpest annual GDP contraction since the Great Depression of the 1920s. The unemployment rate is likely to rise to around 8.5%.
Some economists have talked about Australia entering its first recession in nearly 30 years, which could turn into a depression.
“We live in extraordinary and difficult times,” said central bank governor Philip Lowe. In his opinion, “further stimulation is needed.” He stated this during a press conference on March 19, when the RBA lowered the interest rate during its unscheduled meeting.
Philip Lowe had repeatedly stated earlier that the central bank is ready to lower the rate again if necessary, although the likelihood of introducing negative rates, in his opinion, is “extremely small”.
The main negative factors for the Australian economy are weak wage growth, a weak labor market and a slowdown in growth. Annual inflation has remained below the RBA’s target range of 2-3% for almost four years.
Unemployment in the country remains above the 5% level for many years, unwilling to decline. Now the coronavirus pandemic has been added to the above negative factors, which has already hit the tourism and transport sectors hard. The RBA also expresses concerns that unemployment may rise to 8 or even 10%.
In this regard, it cannot be ruled out that on Tuesday, August 4, the RBA may again cut the rate. However, most economists believe that the bank will leave the key rate unchanged at this meeting, at 0.25%, while expressing concerns about the outlook for the global economy due to the ongoing coronavirus epidemic.
In an accompanying statement, the RBA executives will explain the reasons for the rate decision. If the RBA signals the possibility of further easing of monetary policy in the near future, the risks of a fall in the Australian dollar will increase.
22:45 NZD Change in employment levels. Unemployment rate (data for the 2nd quarter)
The employment rate reflects the quarterly change in the number of employed New Zealand citizens. The growth of the indicator has a positive effect on consumer spending, which stimulates economic growth. A high value is positive for the NZD, while a low reading is negative. Outlook: New Zealand employment increased in Q2, while employment rose 0.3% (against zero in Q4 2019 and +0.7% growth in Q1 2020).
At the same time, the Bureau of Statistics of New Zealand publishes a report on the unemployment rate – an indicator that estimates the proportion of the unemployed population to the total number of able-bodied citizens. The growth of the indicator indicates the weakness of the labor market, which leads to a weakening of the national economy. The decline in the indicator is a positive factor for the NZD. Outlook: unemployment in New Zealand in the 2nd quarter fell to 3.8% from 4.2% in the 1st quarter of 2020.
Other indicators from the Bureau of Statistics of NZ report are also expected to come out with a slight improvement, which is likely to have a positive impact on the NZD. Poorly forecast data will have a negative impact on the NZD.
Wendesday, August 5
09:00 EUR Retail sales in the Eurozone
Retail sales is a major consumer spending indicator that shows the change in retail sales. A high result strengthens the euro, and vice versa, a low result weakens it. Forecast for June: +19.1% (-6.6% in annual terms) against +17.8% and -5.1% (in annual terms) in May. It is difficult to predict the euro’s reaction to the publication of these values, since the data suggests that while retail sales declined in June on an annualized basis, they rose significantly compared to previous months, when Europe was under strict quarantine measures.
14:00 USD ISM Employment Index in the services sector. ISM Services PMI in the US economy
Published by the Institute for Supply Management (ISM), this is an important indicator of US economic conditions and reflects business conditions in the US services sector, taking into account expectations of new orders, stocks, employment, and supply. The ISM Services Sector Employment Index is considered an important leading indicator in the US Department of Labor’s employment report. A high index value strengthens the USD, while a low value weakens it. In May this indicator came out with a value of 31.8, and in June – with a value of 43.1. Despite the relative growth, the result below 50 is seen as negative for the USD. A relative decline in the index can also negatively affect the dollar in the short term. Forecast for July: 51.1, which is likely to have a positive impact on the USD.
Services PMI measures the health of the services sector in the US economy. The services sectors (as opposed to the manufacturing sector) have virtually no impact on the country’s GDP. The growth of the indicator and the result above 50 are considered as a positive factor for the USD. At the same time, a relative decline in the indicator or data worse than forecast may have a short-term negative impact on the dollar.
Forecast for July: 51.8 (versus 57.1 in June, 45.4 in May, 41.8 in April). A result above 50 is seen as positive for the USD, which is likely to support the USD in the short term.
23:50 JPY Japan’s GDP for Q2 2020 (Final Estimate)
GDP is considered an indicator of the general state of a country’s economy that estimates the rate of its growth or decline. The report on gross domestic product published by the Cabinet of Ministers of Japan expresses in monetary terms the aggregate value of all final goods and services produced by Japan over a certain period of time. An upward trend in the GDP indicator is considered a positive factor for the national currency (yen), while a low result is considered negative (or bearish).
In the previous 1st quarter of 2020, the country’s GDP contracted by -0.6% (-2.2% yoy) after falling by -1.8% (-7.1% yoy) in the 4th quarter 2019.
The data point to a quite noticeable slowdown in the Japanese economy since the end of 2019, and this is a negative factor for the yen and the Japanese stock market.
If the data turns out to be even weaker, the yen may decline significantly in the short term. Better-than-forecast data may strengthen the yen.
However, it should also be noted that in recent weeks, participants in financial markets pay little attention to news and weak macro statistics, abandoning defensive assets, including the yen, in favor of riskier and more profitable stock market assets.
Thursday, August 6
06:00 GBP Bank of England’s decision on interest rate. Bank of England’s meeting minutes. Planned volume of asset purchases by the Bank of England. Monetary Policy Report
In March (11 March and 19 March), during its extraordinary meetings, the Bank of England cut its interest rate twice, bringing it to the level of 0.1%, and announced its intention to purchase UK government bonds in the amount of 200 billion British pounds, in an attempt to counteract economic damage from the coronavirus pandemic. The central bank announced that it would increase its bond portfolio to £645bn, then to £745bn from £445bn at the time. “The current situation is completely unprecedented,” the new Governor of the Bank of England Andrew Bailey said at a press conference following the March 19 emergency meeting. Bailey said he expects a sharp economic contraction due to the coronavirus and the Bank of England is ready to take further stimulus measures if necessary. “No, we are not done yet,” he said. Based on these statements by Andrew Bailey, it is fair to expect further actions from the Bank of England towards easing its monetary policy. It is not unlikely that at this meeting on August 6, the Bank of England will again undertake them, increasing the volume of purchases of bonds or lowering the interest rate. Although, most economists believe that the Bank of England will refrain from changes in the current monetary policy for now.
Also at this time, the minutes of the Monetary Policy Committee (MPC) of the Bank of England are published with the distribution of votes “for” and “against” raising / lowering the interest rate. The main risks for the UK after Brexit are associated with expectations of a slowdown in the country’s economic growth, as well as with a large current account deficit in the UK balance of payments.
The intrigue about further actions of the Bank of England remains. And in trading the pound and the FTSE100 index, a lot of trading opportunities will be there during the period of publication of the bank’s decision on rates.
Also at the same time, the Bank of England’s monetary policy report will be published, containing an assessment of the economic outlook. At this time, the volatility in the pound quotes may rise sharply. Apart from GDP, one of the main benchmarks for the Bank of England regarding the prospects for monetary policy in the UK is inflation. If the tone of the report is soft, the British stock market will get support and the pound will decline. Conversely, the tough rhetoric of the report on containing inflation, which implies an increase in the interest rate in the UK, will lead to the strengthening of the pound.
11:30 GBP Speech by the head of the Bank of England Andrew Bailey
Financial market participants expect him to clarify the situation regarding the further policy of the UK central bank in the context of the coronavirus and the slowdown in the British economy. Volatility during his speech could rise sharply in the pound and the London Stock Exchange FTSE if Andrew Bailey gives any hints of tightening or easing of monetary policy. He will probably also touch on the Brexit issue. As previously stated by the previous head of the Bank of England Mark Carney, Britain’s exit from the EU without an agreement would be “a real economic shock.”
Friday, August 7
01:30 AUD RBA’s Comments on Monetary Policy
Annual inflation has remained below the RBA’s target range of 2-3% over the past several years. Weak inflation indicators are driven by slow wage growth and persistent weakness in the Australian labor market.
Given that rates are already at record lows, the markets are discussing the likelihood of the RBA taking additional alternative measures against the backdrop of the economic slowdown due to the coronavirus and restrictive measures.
If the RBA’s comments on monetary policy contain unexpected information, volatility in AUD trading will increase. Soft rhetoric regarding further monetary policy plans will be bearish for the AUD.
12:30 USD Average hourly wages. Non-Farm Payrolls. Unemployment rate
These are the most important indicators of the state of the labor market in the United States for July. Forecast: -0.5% (against -1.2% in June, -1.0% in May, + 4.7% in April) / +2.26 million (against +4.8 million in June, + 2.509 million in May and -20.687 million in April) / 10.5% (against 11.1% in June, 13.3% in May and 14.7% in April), respectively.
In general, the figures can be described as disappointing but quite understandable due to mass layoffs in American companies and the closure of offices and shops due to the coronavirus. At the same time, the data indicate a gradual improvement in the US labor market after its collapse in previous months at the beginning of the year. Prior to the coronavirus, the US labor market remained strong, signaling the stability of the American economy and supporting the dollar.
It is often difficult to predict the market reaction to the publication of indicators. Many indicators for previous periods are subject to revision. Now it will be even more difficult to do this, because the economic situation in many other large economies is no better. In any case, when data from the US labor market is published, a surge in volatility is expected in trading not only in USD, but throughout the financial market. The most cautious investors might choose to stay out of the market during this time.
12:30 CAD Unemployment rate in Canada
Statistics Canada is to publish data on the country’s labor market for July.
Unemployment has risen in Canada in recent months, including amid massive business closures due to coronavirus and layoffs. Unemployment rose from the usual 5.6-5.7% to 7.8% in March and already to 13.7% in May. If unemployment continues to rise, the Canadian dollar will decline. If the data is better than the previous value, then the Canadian dollar will strengthen. A decrease in the unemployment rate is a positive factor for the CAD, an increase in unemployment is a negative factor. The unemployment rate is expected to be at 12.8% in July.