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Market Wrap – July 2020

   

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Another month and another increase in the number of coronavirus cases all around the world as this now passes 17 million with over 675,000 deaths.  What is certain is that coronavirus pandemic is not going away any time soon, as it continues to wreak havoc across the world.  Economies of all sizes around the world are feeling the wrath of the COVID-19 pandemic as central banks have taken emergency action to cut rates (some repeatedly) and increase stimulus measures.  The United States Commerce Department recently announced that the U.S. gross domestic product contracted at a staggering seasonally adjusted annual rate of 32.9% in the April-June quarter, providing some tangible evidence of the significant impact the coronavirus has had.   In the recent two-day U.S. Federal Reserve meeting, the official statement said, “The path of the economy will depend significantly on the course of the virus.”  “It’s just such an important sentence, we decided it needed to be in our post-meeting statement,” Fed Chairman Jerome Powell added during his post-meeting news conference. “It’s so fundamental” which only underscores how significant this event really is on the global economy. 

EURUSD

During the month of July, the EURUSD has seen a strong resurgence as it has surged higher to a two year high above 1.18.  It had met some resistance at 1.13 for several weeks, as it was trading between support at 1.12 and the resistance at 1.13 consolidating there, after easing from a then three month high above 1.14.  Given the significance of the 1.13 level, this is likely to offer some support should the EURUSD decline from its current highs, however currently the EURUSD appears to be only looking higher.   On its way to the then three month high above 1.14, the EURUSD moved through many key levels on its way, many of which have previously played a role in the EURUSD’s price action, including the 1.10 level which had been offering stiff resistance on several occasions throughout April and May.  There are no obvious levels above 1.13 that are likely to step in and offer support should the EURUSD decline, however they may form.  

EURUSDDaily (9)

The European Union has reached a historic deal which will disburse 390 billion in grants and 360 billion in cheap loans to member countries based on criteria, including unemployment rate, to help them recover from the coronavirus pandemic.  Interestingly, the European Central Bank (ECB) President Christine Lagarde said that she believes the deal "could have been better".  Ms Lagarde tweeted, "Thank you for your resilience and determined action over the last days. We can only fight the economic consequences of COVID-19 by working together.  Today’s agreement by @EUCouncil shows that when most needed, the EU steps up and comes together to help the people of Europe."  The ECB President addressed the European leaders, thanking them for their “resilience” and their “determined action over the last few days”.  A jubilant European Council president Charles Michel tweeted, “We did it! We have reached a deal on the recovery package and the European budget for 2021-2027. This is a strong deal. And most importantly, the right deal for Europe right now.”  

GBPUSD

Like the EURUSD the GBPUSD in July has surged higher through two key levels to reach a five month high near 1.31.  Just prior to the surge, it was meeting resistance at the key 1.2650 level, remaining within a narrow range consolidating between another key level of 1.25 and 1.2650.  During this time, it has met some support from the 1.25 level, and both of these levels may step in and offer some support should the GBPUSD decline, however it will have to fall through the 1.30 level first.  The 1.30 level had been a distant memory however the GBPUSD has now surged higher to return to that level and move straight through.  It could have been expected to offer some resistance, however it now may provide some support to the GBPUSD.  For several months earlier in the year, the GBPUSD continued to trade around this key level showing no signs of breaking away in either direction.

GBPUSDDaily (9)

Somewhat controversial figure, the Bank of England’s (BOE) chief economist, Andy Haldane, believes the British economy is enjoying a V-shaped recovery, which flies in the face of many central bank officials who believe it is struggling and that unemployment will rise.  Mr Haldane told MPs earlier in the week that the UK economy had been growing about 1% a week, on average, since May.  “Roughly half of the roughly 25% fall in activity during March and April has been clawed back over the period since,” he said. “We have seen a bounce-back. So far, it has been a V. That, of course, doesn’t tell us about where we might go next.”  Mr Haldane added that the UK economy has clawed back approximately half of the enormous contraction through March and April when the restrictions to combat the coronavirus pandemic were tightest.

AUDUSD

Unlike the EURUSD and GBPUSD, the AUDUSD has experienced a more subdued July pushing higher to its highest level in more than 16 months above 0.72, and in doing so, pushing through the key 0.7050.  Since that time, it has also enjoyed some support from the key 0.7050 level keeping the AUDUSD above that level and near the highs.  Should the support at 0.7050 fail, this level may reverse roles and provide some resistance again.  For the last month or so the AUDUSD had seemed content to remain within a range between another key level of 0.6850 and the resistance at 0.7050.  Leading in to that range, the AUDUSD had spent several weeks pushing higher to reach 0.7050 however it ran into a wall of resistance, as it had previously offered stiff resistance to the AUDUSD last year, reinforcing how significant that level is.  It has since enjoyed support from another key level in 0.6850 however should support at 0.6850 fail, then the 0.6750 level is also likely to step and offer some support having been a significant level earlier in the year.  

AUDUSDDaily (9)

In its July board meeting, the Reserve Bank of Australia (RBA) kept the official cash rate at its historic low of 0.25% and indications are that this rate will remain low for many years to come.  Since that latest meeting, RBA assistant governor Chris Kent has said the Australian dollar is around "fair value", despite some concerns it is appreciating too much.  “We are not overly concerned. Many countries would have spare capacity and dial up activity via a lower exchange rate.  But not everyone can have it," he said in a recent webinar.  "Our assessment is it's at fair value," he added.  He said the fundamentals were interest rate differences and commodity prices and "the relative performance of our economy versus economies offshore," that justified the currency's settings.  In the webinar, Dr Kent said the RBA’s intervention in debt markets has "worked well" to stabilise and restore confidence to markets while allowing banks and corporations to access crucial funding.   "The actions of the Reserve Bank have contributed to historically low funding costs for banks," he said.

US30

The US30 index has had a subdued July meeting resistance at the key 27000 level for the most part.  In the last week of the month the US30 index eased away from resistance at the key 27000 level, which has stood tall for the last two weeks now.  In the few days leading up to the resistance, the US30 index pushed higher through the 26000 level reaching its highest level in three weeks, before running into a wall of resistance at 27000 which has applied significant selling pressure on the index.  In the last month or so it has enjoyed solid support from another key level at 25000, while receiving some resistance from 26000 remaining in a range between these levels, up until the break mid-July.  Should the index decline, both the 25000 and 26000 levels will be expected to continue to offer support, while the 27000 level continues to loom above having placed downward pressure on the index recently and earlier in the year.

US30Daily (6)

There remains significant concern over the United States’ ability to recover from the devasting impact of the coronavirus pandemic, and the minutes from the U.S. Federal Reserve (Fed) meeting in June show a central bank that is deeply concerned for how the U.S. economy will recover from the coronavirus pandemic.  They are concerned that some businesses will not endure the pandemic and that consumer spending may not fully recover until next year at the earliest.  The minutes show that Fed officials believe the economic outlook is very uncertain and that the country needs to attempt to contain the coronavirus to assist with an economic recovery, while government support could end prematurely.  Fed officials cited “extraordinary” uncertainty and “considerable risks” to the economic outlook.  “Among the other sources of risk noted by participants were that fiscal support for households, businesses, and state and local governments might prove to be insufficient,” the minutes state.  

Gold

Gold has only headed in one direction in July and that is up … up to all-time highs above $1980.  In the last two weeks of the month, XAUUSD has exploded higher before easing a little.  In the last month or so it has steadily climbed higher off support at the key level of $1675, before the recent surge.  Two weeks ago, XAUUSD consolidated around eight-year highs above $1800 after moving steadily higher in the last few weeks.  It consolidated well for three months being well supported by the key $1675 level, which set up conditions for the recent push higher.  Just prior to the recent move higher, gold was trading in a very narrow range under $1750 after having recently bounced off the solid support at $1675, and the $1750 level may provide some support should it decline.  

XAUUSDDaily (9)

As the world continues to tackle the coronavirus pandemic, gold is enjoying a resurgence as investors flock to this haven.  This has been supported by the recent two-day meeting of the U.S. Federal Reserve (Fed) at which the Fed left their benchmark interest rate unchanged near zero.  The pandemic is having an unprecedented impact on the global economy as significant concerns remain about the economic outlook for years to come.  Coronavirus cases continue to surge in the United States, with four states reporting one-day records for virus-related deaths earlier in the last week.  Further, recent data showed that U.S. consumer confidence fell more than expected in July, which only underpins the significant economic impact from the virus.  In the recent meeting the Fed had little choice but to reference the pandemic.  “Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year,” the post-meeting statement said.  “The path of the economy will depend significantly on the course of the virus,” the statement said.  

UK Oil

UK Oil has enjoyed a relatively quiet July trading in a very narrow range right around what has become a key level at $43.  The $43 level had been providing stiff resistance to UK Oil however it has since crept a little higher in the last few weeks of the month.   Throughout May, UK Oil slowly but surely moved higher to a three-month high around $43, before falling sharply, and then making repeated attempts to push passed the current resistance around $43.  Should this level be convincingly broken, it will most likely provide some support, however it remains quite close.  Its recent surge higher is a vastly different picture to mid-April, as UK Oil sank to its lowest level in many years below $20, and currently UK Oil is close to closing the significant gap down in early March, by returning to above $45, however it remains below that level.  

UKOilDaily (6)

Over the last month, slowly but surely, governments have been easing restrictions allowing more movement which is increasing the demand for oil.  It isn’t near pre-coronavirus levels, however it has moved from its deepest lows.  The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, agreed two weeks ago to ease up on oil production cuts from August, as they will reduce their cuts to 7.7 million barrels per day through December from the 9.7 million bpd cuts in place since May.  As global economic activity picks up a little as countries begin to lift restrictions due to COVID-19, as the world is slowly getting back to normal on the oil market, there has been tightening global inventories which offset any boost to the oil prices.   Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said production cuts in August and September would end up amounting to about 8.1 million-8.3 million bpd, more than the headline number.  He added that this is because countries in the grouping which over-produced earlier this year would compensate with extra August-September cuts.

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Disclaimer:

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.

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