U.S. Dollar – Will Buyers Return in August?

U.S. Dollar – Will Buyers Return in August?

Kathy Lien  | Jul 31, 2020 20:48

July was a very difficult month for the U.S. dollar. The greenback sold off sharply against all of the major currencies, hitting multi-month or multi-year lows in the process. In one month, it lost 6% of its value against GBP/USD, 5% versus the euro and more than 4% against the Swiss Franc and Australian dollar. From rising coronavirus cases, falling yields, expiring stimulus benefits, domestic turmoil, an unpredictable U.S. President and political tensions with many countries around the world, investors had plenty of reasons to abandon the greenback. The nail in the coffin on Thursday was President Donald Trump’s suggestion to delay the 2020 election, which is against the Constitution. Leading Republicans were quick to reject the idea, but investors fear that the sitting President will try to delegitimize the election in other ways. This grim political and economic outlook for the U.S. dollar makes it difficult to attract buyers.  
 
Nonetheless, the oversold greenback rebounded on Friday, leading traders to wonder if there will be a more significant recovery next month. U.S. data was mixed, with personal spending rising more than expected but incomes falling. Yet, the fact that there was any upside surprise was enough to lift the dollar. Further gains in the dollar next month is likely to come from profit-taking of overstretched currencies rather than underlying demand for the greenback. Virus cases are ticking higher again in many parts of the world and there are worries that recoveries could slow. Growth will come into central focus next week with a busy economic calendar that includes two monetary policy announcements, three employment reports, Chinese trade data, U.S. ISMs and other market-moving events. 
 
Investors will be eager to see if the recovery in manufacturing and services continued in the U.S. during the month of July, but the most important release will be non-farm payrolls. Job growth recovered significantly in June after major losses in April and economists are looking for continued recovery in July, but at 2 million, it would be a notable slowdown from last month’s 4.8-million increase. Most of the new restrictions in states with suffering from recent spikes in COVID-19 cases were not implemented until mid-July, so it will be interesting to see if job growth slowed in advance of that. If re-hiring continued at a healthy clip, the dollar will bounce, but if it misses expectations, investors will see it as a foreshadowing of what’s to come. 
 
EUR/USD soared above 1.19 before the London open but rejected that level swiftly on Friday. The contraction in the Eurozone economy in the second quarter was slightly worse than expected. France and Italy fared better than forecast, but Spain disappointed. Like the U.S., these numbers show the extent of COVID-19 damage on the Eurozone economy. However, unlike the U.S., the recovery fund and relative containment of virus cases in Europe should lead to a stronger recovery. Aside from revisions to EZ PMIs and German trade data, there are no major Eurozone economic reports on next week’s calendar, which means EUR/USD will take its cue from U.S. data and the market’s appetite for the greenback. 
 
While EUR/USD corrected lower on Friday, GBP/USD extended its gains for the 11th straight trading day. This is the longest stretch of gains for the pair in the past decade. There’s resistance at 1.32 but the primary level to watch is 1.35. The Bank of England has a monetary policy announcement next week. The last time it met, it was less dovish than the market anticipated. I don’t expect any significant changes in its outlook as the economy improved since the last policy meeting.
 
The Reserve Bank of Australia on the other hand should be less optimistic with data deteriorating and virus cases rising in Victoria. While the New Zealand dollar fell the most on Friday, the Australian dollar is the most vulnerable to a correction next week because of RBA, PMIs and retail sales. New Zealand has second-quarter labor market numbers scheduled for release. The Canadian dollar was more resilient, ending the day unchanged thanks to stronger than expected monthly GDP data.  

Kathy Lien

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moshe percy
moshe percy

will the pair reach 1.2 euro/usd in the upcoming week😕  ... (Read More)

Aug 02, 2020 17:06 GMT· Reply
EMAILFOR KHANIMTIAZ
EMAILFOR KHANIMTIAZ

What's the percentage error in the government's non-farm payroll numbers?(How honest they are in providing the numbers)   ... (Read More)

Aug 02, 2020 10:30 GMT· Reply
Jagdeesh Rao
Jagdeesh Rao

good info  ... (Read More)

Aug 01, 2020 17:34 GMT· Reply
Haseeb Kanhio
Haseeb Kanhio

well written  ... (Read More)

Aug 01, 2020 16:21 GMT· Reply
Yelen Shim
Yelen Shim

well written  ... (Read More)

Aug 01, 2020 15:54 GMT· Reply
Ronak Vachhani
Ronak Vachhani

What is ur view on GBPUSD & EUROUSD ?  ... (Read More)

Aug 01, 2020 15:15 GMT· 1 · Reply
Paolo Paolo
Paolo Paolo

Always wonderful, Kathy!   ... (Read More)

Aug 01, 2020 14:03 GMT· Reply
Amir Farnoosh
Amir Farnoosh

simple and completethx  ... (Read More)

Aug 01, 2020 13:52 GMT· Reply
MEHMET BORA ÖZALP
MEHMET BORA ÖZALP

are we sure about US wants strong $. World trade market is shrinking, best way to increase exports is to lower prices. inflation anomaly leaves room to devaluate USD against rival currencies. weaker USD boosting all US exports. I don't think gold & silver prices ever go down again.  ... (Read More)

Aug 01, 2020 11:53 GMT· Reply
Johnson Boat
Johnson Boat

Thank you  ... (Read More)

Aug 01, 2020 11:03 GMT· Reply
Amit Sharma
Amit Sharma

Good coverage Kathy! Thanks   ... (Read More)

Aug 01, 2020 08:50 GMT· Reply
Ravi Mantri
Ravi Mantri

Good report   ... (Read More)

Aug 01, 2020 00:19 GMT· Reply
Rowenno Cuayzon
Rowenno Cuayzon

Great job👍  ... (Read More)

Jul 31, 2020 22:08 GMT· Reply
Nnawuihe Njoku
Nnawuihe Njoku

good analysis👍👍  ... (Read More)

Jul 31, 2020 21:09 GMT· Reply
Michael Petrou
Michael Petrou

Very informative, great work, thanks  ... (Read More)

Jul 31, 2020 20:54 GMT· Reply
kuldeep kale
kuldeep kale

thanks   ... (Read More)

Jul 31, 2020 20:08 GMT· Reply
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