Euro Soars Above 1.15 – How High Can it Go?

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Euro Soars Above 1.15 – How High Can it Go?

Daily FX Market Roundup July 21, 2020

European Union leaders finally reached a $2 trillion deal to rebuild their economy, sending the euro to a 6 month high above 1.15. This historic agreement appeases all parties with a nearly equal mix of loans and grants. It will go a long way in boosting growth for a region already in the midst of recovery. Unlike the US and other countries / regions, Europe has managed to keep virus cases low as they reopened. The Eurozone economy has taken a turn for the better, data is improving and this stimulus package will provide a big cushion to the recovery. With the US economic outlook growing more uncertain, these steps to insure a stronger recovery has and should continue to drive euro higher. As growth divergences become more apparent, stronger currency trends could emerge. With that said, EUR/USD has been in a consistent uptrend for the past month and now that it’s broken above 1.15, there’s minor resistance at 1.16 and more significant resistance above 1.17. As a risk currency, it should benefit from any positive vaccine news and US stimulus talk.

The US dollar on the other hand traded lower against all of the major currencies. There was no US data and stocks rallied but investors are less interested in buying dollars given ongoing concerns about the US economic outlook. The July 31st extra unemployment benefit expiration date is quickly approaching and without a clear plan to provide ongoing support to the US economy, the dollar could become less attractive. The White House wants a payroll tax cut and there are significant differences on whether that’s the best way to cushion the economy from another downturn. Companies are not adding workers for a variety of reasons and reducing payrolls taxes may not encourage more spending and hiring. Existing home sales from the US are scheduled for release tomorrow and we expect a recovery in housing market activity.

The Australian and New Zealand dollars are on a tear with A$ rising to its strongest level in more than a year (February 2019 to be precise). While the Reserve Bank and Governor Lowe expressed concerns about the labor market and the restrictions in Victoria, none of that mattered as the government extended its wage subsidy program for another 6 months to the end of March. This program which provided a biweekly payment of A$1,500 to more than 3.5 million workers of businesses struggling to keep employees on went a long way in cushioning the blow for consumers and businesses. Although the actual payment for the next few months will decline and have 2 tiers based on hours worked, it was a welcomed relief for the RBA and AUD traders. The Australian dollar will remain in focus as Treasury is scheduled to deliver an economic and fiscal update on Thursday. Meanwhile it was no surprise that credit card spending increased in New Zealand during the month of June. The country continues to lead the region’s recovery.

Retail sales in Canada also turned positive but the 18.7% increase in May after the -25% decline in April was weaker than expected. Nonetheless the loonie still traded higher on the back of US dollar weakness. Canadian CPI numbers are due for release on Wednesday – further improvements are expected as oil prices rebound. Sterling lagged behind EUR, AUD and NZD as public sector finances came in lower in June. GBP also suffered from EUR/GBP buying.

Kathy Lien
Managing Director

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