EUR/USD is trending within a narrow range. But a flag pattern occurring on the charts brings in some optimism in the market.
Non-Farm payrolls in the US for June have surged. According to reports published on Thursday by the US Bureau of Labor Statistics, it has shot up by 4,800,000 in June. Though estimates were projected at 3000k, actual figures show that payrolls have rebounded sharply.
The unemployment rate in the U.S. has fallen from 13.3 percent to 11.1 percent for June. Labor Force Participation Rate has increased from 60.8 percent to 61.5 percent. Meanwhile, consumer spending has sharply improved for the month.
Job increase shows recovery with reopening of bars, restaurants, and other businesses. This reopening has also brought a fresh wave of Covid-19 infections in places like California, Texas, and Florida in the US. The US manufacturing activity was more positive than expected data for June.
Friday is a public holiday in the US and it is a short week for trading activities.
The U.S. Dollar Index went lower, losing 0.28 percent to 96.88. Sterling is expected to benefit most from the weakening US dollar. Safe-have flows are expected to reverse. In particular, the U.S. presidential election in November is causing political uncertainty.
Currency Rates
The dollar index which tracks the greenback against six other important currencies was down at 97.013, down by 0.2 percent.
EUR/USD is at 1.1280
GBP/USD is at 1.2510
USD/JPY is at 107.44
AUD/USD is at 0.6919
USD/CAD is at 1.3601
USD/CHF is at 0.9438
The European Central Bank Chief Economist Philip Lane states that the Eurozone is in the “second stage of recovery”. The Central bank is showing a wait-and-see approach and is not expected to bring in any monetary easing shortly. However, a COVID-19 recovery fund is soon to be expected that would ease the need for a monetary policy stimulus.
EUR/USD is expected to remain afloat as the ECB president Christine Lagarde might retain the current policy. The RSI remains in the bullish zone. EUR/USD may touch March high of 1.1495 as it is above the April range. The 61.8 percent Fibonacci level is at 1.1390.
GBP/USD at Resistance Level
GBP/USD has strong resistance at 1.25 levels. The US non-farm payroll data which is expended for this session will determine the progress of GBP/USD. Though job growth in June is expected to be good, not much of an increase is expected. However, it brings in a note of optimism to the market.
GBP/USD slipped low on Tuesday to 1.22, touching a one-month low. It opened at 1.23 this week. GBP/USD however, rebounded and faces resistance in the region of 1.25.
Sterling Expected to Rise
The pound is almost 6.5 percent down against the dollar for the year. Prime Minister Boris Johnson plans on a 5 billion pound infrastructure investment to improve market sentiment. Experts feel that a Brexit deal may occur or a delay may be agreed upon. Markets expect the sterling to rise on this expectation.
The British Pound has started the month of June with strength. This week saw the Sterling up 0.5 percent against the US Dollar. The Sterling is expected to gain strength towards the end of the year if a deal over trade relation is made. But Brussels and London continue to remain at loggerheads with each other. There are chances of a no-deal Brexit occurring by the end of the year.
UK Expected to Outperform
Though GDP in the United Kingdom contracted sharply in the first quarter, the balance of trade deficit has grown. It has widened to $26.4 billion (£21.1 billion). Analysts expect the global economy to recover which will benefit the UK and US mid-cap.
The United Kingdom has not requested an extension for the Brexit deal as the June 30 deadline has passed. It is expected that future trade relationship with the bloc will have to be decided over the next six months.
German Chancellor Angela Merkel is taking over the European Union presidency from the beginning of July. Plans for a 750 billion euro recovery fund will be challenged. There is a Symmetrical Triangle showing a bullish trend in the German benchmark index.
In terms of undervaluation against the greenback, Sterling is in second place after Japan’s yen among the G-10 currencies.
Market sentiment has improved as news of progress regarding a coronavirus vaccine is expected.
The Australian Dollar may see a favorable move as positive manufacturing data is expected. The AUD/USD is holding firm above the 0.6900 mark.
USD/CAD has reversed from the March low of 1.3315. However, it was not able to break the June highs of 1.3801. Meanwhile, the RSI continues to form a bearish pattern from May. Governor Tiff Macklem, Bank of Canada has ruled out a V-shaped recovery in the economy. According to Fitch Ratings, Canada’s Issuer Default Rating (IDR) has been downgraded from AAA to AA+.
