RedFX Snap: Plenty ahead this week

In a year already like no other, the summer is unlikely to be the sleepy environment of years gone by. With Covid-19 still rampant, politicians, economists and consumers face enormous decisions, with enormous headwinds. I attach a photograph of Nice airport at 20230 on 27th July 2020. For everyone that predicts a V-shaped recovery, I would like to present that photograph.

USD: Big week ahead for the USD, which has lost about 7 % of its value against the EURO and 6% against GBP since mid-May. After posting huge losses for almost 2months, EUR/USD is at 1.1700 and GBP/USD at 1.2850. UBS states that elections, economic growth, trade wars and taxation will all continue to hurt the USD in the medium term.

Tonight and tomorrow we have the meeting of the Federal Reserve, and Thursday sees a huge day of corporate earnings, with 4 of the ‘big-tech’ stocks reporting.

The weakness in the USD is not simply due to current economic woes, but the size of the Fed’s future balance sheet. Deutsche Bank expect this to exceed $20 trillion in less than a decade – this will push the ‘shadow’ Fed Funds rate to -5%. Although not utilised by the Fed, this calculation takes easing into account, and shows the huge discrepancy. The Fed has continued its rhetoric of NOT wanting negative rates, but if the reality is different, the market is beginning to notice.

Others: The group of commodity currencies (AUD. NZD, CAD) suffered setbacks, and trade cautiously , with yesterday’s fall in oil not helping.

GBP/EUR continues to trade within its recent range of 1.09 to 1.1100, awaiting some Brexit headlines or some meaningful economic data from either nation.

Ahead:

Weds: AUD Inflation data **

Weds: US Interest Rate decision and Press Conference *** 

Thurs: German Unemployment *

Thurs: German GDP ** German Inflation **

Thurs: US GDP ***

Fri: Chinese Manufacturing ***

Fri: German Retail Sales **

Fri: Eurozone GDP & Inflation ***