FX week ahead: Second wave fears to grow?

Giles Coghlan LLB, Lth, MA Financial Source

Gold was the stand outperform this week taking out its all-time highs and bursting through $1921 to the upside. The speed at which gold is heading towards the $2000 level has surprised many analysts, but the low-interest rates around the world and the increase in central banks’ QE programs have created a perfect environment for gold to shine. The question is will it reach for $2000 in August or will we see a pullback n price first? This month has also seen large multiyear gains in the euro and record losses in the US dollar.

Key events from the past week

Gold shines: Record all-time highs, July 28. Gold blasted through previous all-time highs this week. It was aided by broad dollar weakness on rising US COVID-19 cases and the delay in passing the stimulus bill as Republicans and Demo-crats try to reach a point of consensus on the $2 trillion Cares Act

EUR: Large gains for the EUR, July 29. The Euro is headed for the largest month of gains in around four years and the EURUSD pair has moved higher 4.8% this month which is the most since March 2016. This rise has been fuelled by the broad USD weakness as seen by the falling Dollar Index.

USD: Worst month in a decade for the USD. According to Bloomberg data from the Commodity Futures Trading Commission (CFTC) the US dollar is now head-ing to register its weakest July since 2010. The Bloomberg Dollar Spot Index has fallen a large 3.4% this month alone.

Key events for the coming week

USD: Non-Farm Payrolls, August 07. A weak NFP reading will add to growing concerns that the US economy is facing further headwinds from a second wave outbreak of COVID-19. A weak print here could prompt eager US stock sellers.

GBP: UK interest rate meeting, August 06. There is no interest rate change expected, but speculation is rising about the Bank of England using negative interest rates. If interest rates are cut to negative this week then expect heavy GBP selling on the surprise move.

COVID-19: Second wave fears to grow? This week saw the start of concerns about a ‘second wave’ outbreak in Europe. With concern over rising cases in Germany and Spain, the market will be very wary of a second wave which will bring European economies to a halt.

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Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

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