After experiencing a much-needed correction from two-year highs above 1.19, the fundamentals underpinning the EUR/USD pair remain firm and are pointing to the upside as Europe’s faster economic recovery, US coronavirus cases and uncertainty about fiscal stimulus are in play.
Key quotes
“Coronavirus: While the old continent is experiencing several flareups – most notably in Spain – COVID-19 cases are under control. That cannot be said about the US, where infections top 4.6 million and deaths surpassed 155,000. The mortalities curve remains on an upward trajectory in America.”
“Faster recovery: The US economy squeezed by 32.9% annualized in the second quarter – or 9.5% quarterly – worse than the eurozone's -12.1% fall. Nevertheless, strict lockdowns not only kept the disease depressed but also impact economic sentiment. That will come to a test with Purchasing Managers' Indexes for July. Markit's PMIs are mostly final ones, leaving investors' focus on the US ISM Manufacturing PMI. Expectations remain cautiously optimistic as the industrial sector is less sensitive to the virus than the services one.”
“America's emergence from the disease also heavily depends on government support. The $600/week top-up of federal unemployment claims several other special programs have lapsed at the end of July and lawmakers have failed to reach an agreement on new support. Republicans and Democrats have scheduled further negotiations on Monday. While markets expect an imminent accord every day that passes causes economic pain to millions that are unemployed.”
“Sino-American tensions remain elevated, this time around TikTok and may expose Americans' personal data to Chinese authorities. President Trump wants to follow other nations and ban the application – and potentially other ones. However, Microsoft could but TikTok and provide a solution. The world's largest economies also clashed around Huawei, Hong Kong and human rights in Xinjiang. Friction had previously triggered safe-haven flows supporting the dollar, but it is now weighing on the greenback.”
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