Coronavirus cases continue to surge in the U.S.
- The U.S. passed 3 million confirmed cases of coronavirus, representing a quarter of all cases worldwide
- High record of COVID cases in the US has exacerbated fears of a second wave, making investors less certain about a swift economic recovery that was suggested previously by manufacturing index, NFPs and fall in unemployment.
- Less optimistic sentiment about global economic recovery strengthened the greenback because it has been traditionally seen as a safe-haven currency.
EU Council talks about post coronavirus economic recovery plans
- President of European Council, Charles Michel proposes a 750 billion euro stimulus package
- The 750 billion Euro stimulus package has been stymied by the frugal four (Austria, Denmark, Sweden and the Netherlands), opposed the amount of debt the ECB incurs in the process
- Eurozone talks throughout next week are set to drive the Euro’s performance, depending on whether the plan is set in motion.
China GDP performance and hope of recovery
- Forecasts for China’s GDP this Thursday predict the China economy grew by 2.5% year-by-year in the June quarter, after shrinking by 6.8% in March
- Investors are anticipating for China retail sales, industrial production and GDP in the next few weeks.
- Weak performance from China could weaken the optimism of economies being able to recover from Covid-19. A weaker Chinese economy could also impact the Aussie, which is heavily dependent on China for commodity exports
Gold returns to old highs made in 2011
Historically gold and equities have an inverse relationship; with gold being the safe haven during economic downturns. However recently there has been a positive correlation between the two suggesting that the current strong economic recovery we are experiencing is still met with fearful investors expecting worse to come.
EUR/USD – Bullish
The Euro was quite volatile over the past week, the pair seems to trend upwards in a narrow channel. Given the stimulus package implemented in June, we can expect that the pair will test the 1.133 level again, especially if there are positive results from the manufacturing and construction indexes being released. However, the pair is highly dependent on the EU Council talks taking place next Friday.
AUD/USD – Bullish
The AUDUSD pair has currently been using the level at 0.69290 as support, potentially forming a higher low on the daily. With the dramatic resurgence of COVID cases in the US, the currency could potentially retest the highs made in June followed by the level at 0.71982 for a longer-term target.