FX week ahead: COVID-19 case count growing in Europe could weaken the EUR/USD
|Gold made record highs this week as the $2000 figure was taken out for the first time. According to Bloomberg the number of stories with the phrase ‘gold price' in are at their highest level since 2013. With real interest rates falling in the US and a very weak USD the stage is set for a potentially long bull run in gold and silver. However, any strong signs of an economic recovery and rising US interest rates would invalidate this outlook. The US Stimulus Bill is still not passed at the time of writing and this, alongside COVID-19 case count numbers, has kept the USD pressured all week helping major USD pairs higher.
Key events from the past week
Gold rockets higher: Takes out $2000, Aug 04. Gold shot through the $2000 level this week as US 10 year bond yields plummeted lower. It was further helped higher by continued dollar weakness on rising US COVID-19 cases and the delay in passing the US $2 trillion Cares Act stimulus bill.
AUD: RBA, Resilient in face of risk, Aug 04. The RBA was more optimistic than the market had been expecting this week as once again Governor Lowe did not seem concerned about the strong AUD. This allowed the AUD to rally higher out of the meeting and positive risk sentiment helped the AUDUSD higher.
GBP: UK interest rate meeting, Aug 06. In the COVID-19 induced crisis there is lack of certainty on forward guidance and even the debate around negative interest rates is uncertain. The Bank of England does not think negative interest rates are effective, but is not ruling them out either. Uncertainty abounds.
Key events for the coming week
NZD: RBNZ cash rate, Aug 12. The RBNZ are expected to stay on hold next week and keep the cash rate at 0.25%. OiS futures price in only a 5% chance of a rate cut next month. However, will the RBNZ issue a surprise
AUD: Employment rate, Aug 13. The RBA is expecting unemployment to remain elevated above 7% for the near term. However, any signs of severe employment stress (such as a reading of +8%) will potentially weaken the AUD which typically falls during the month of August.
COVID-19: Case count growing in Europe. This week saw continued concerns about a ‘second wave' outbreak in Europe. If we see a fall in US cases, but a rise in European cases this has the potential to weaken the EURUSD.
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