FX & market recap:
The Federal Open Market Committee (FOMC) meeting statement had a few tweaks that emphasised their dovish stance. They repeated that the ongoing public health crisis would weigh heavily on the economy and acknowledged concerns about the uptick in new cases. They said, “The path of the economy will depend significantly on the course of the virus.” And just in case people were concerned about interest rates moving higher, Mr. Powell said: “we are not even thinking about interest rates.”
The dovish result was expected, and the US dollar slid into the close. FX markets were steady in Asia, although oil prices and gold traded with a negative bias. WTI suffered from Wednesday’s EIA report that US crude inventories rose by 10.6 million barrels in the week ending July 24.
Traders may react negatively to US Q2 GDP falling 34.2%, as forecast. The economy is expected to have been trashed thanks to the pandemic but seeing the number may spook markets. US jobless claims are forecast at 1.45 million, higher than last week and evidence US growth is stumbling.
Canadian dollar highlights:
USD/CAD rallied alongside the drop in the antipodean currencies. The failure to extend losses below 1.3330 this weak, and a rise in negative risk sentiment, boosted prices. USD/CAD continues to be at the mercy of broad US dollar sentiment. Some analysts are suggesting that all the good news is already priced into the currency, leaving limited USD/CAD downside in the coming weeks.
EUR/USD traded softly in Asia and then accelerated lower in Europe. Prices dropped from 1.1792 to a low of 1.1732, after the report that Q2 German GDP fell 10.1% q/q. No one should have been surprised, which helps explain EUR/USD’s bounce to 1.1755 at the NY open. Euro-area data was weak but close enough to forecasts not to be a factor.
British pound highlights:
GBP/USD found a bottom at 1.2946 just before Europe opened, then climbed to 1.3010 following the German data. Sales of EUR/GBP fueled the rally. GBP/USD is holding those gains in early NY trading, awaiting the upcoming US data.
Asia Pacific highlights:
USD/JPY traded sideways for most of the Asia session then climbed to 105.28 from 104.92 just before Europe opened. The gains were not sustained. However, the technicals are still bearish, and a drop in US 10-year Treasury yields to 0.558% is weighing on prices.