After their astonishing performance in July, Asian equities kicked off the month of August in a more mixed fashion with the major indices in China and Japan trading higher while Hong Kong and Australia are seeing their benchmarks decline. US futures aresteady as investors have lots to digest including important jobs figures, renewed US-China tensions and a key ruling on the new stimulus package from Congress.

In currency markets, the Dollar could not maintain an early morning rally. After marching towards 93.70, the DXY returned to where it started at 93.45. Low interest rates remain the biggest challenge to attractingDollar inflows, with current 10-year bond yields stuck near 0.5% and real yields sittingaround -1%when deducting for inflation. Large twin deficits along with negative real rates is a depressing formula for any currency, even if it is assumed to be a safe haven one. However, given the bearish bet on the USD has risen again to the largest overall since April 2018, we may see some sort of short squeeze going forward leading to some spikes in the US currency.

With the earnings season coming closer to an end, the focus will shift back to data and thedecision by Congresson the next Covid-19 stimulus package. Discussions between the Democrats and Republicans are making some progress especially as both are on same page with regards to the direct cash payment of $1,200 to Americans, but unemployment assistance remains a key sticking point and a middle ground doesn’t seem to have been reached yet. Democrats want to keep the federal assistance as the previous package of$600 per week, while the White House is calling for a third of this amount. The longer the disagreement persists, the higher the chances of a market correction.

- advertisement -

While most agree that the bottomin economic activity is behind us, the question has now become whether the US recovery is showing signs of cracking and the Non-Farm Payrolls figure due to be released on Friday will probably answer this. After 7.5 million jobs were created over the months of May and June following 22 million job losses in the prior two months, markets expect another 1.65 million jobs to have been added in July. However, expectations vary greatly with some even expecting a contraction given two consecutive weeks of increases in initial jobless claims. The way forward is likely to be bumpy asseveral US states are re-imposing lockdown measures after spikes in Covid-19 cases. This probably won’t show up in the data until the release of the August figures in September. Investors should also keep theireyes on other US data releases out this week for further evidence on whether the economic recovery is stalling including manufacturing and services activity, motor vehicle sales, factory orders and the weekly initial jobless claims.

Previous articleAustralian Dollar Turn Higher After Impressive Australia And China Data
Next articleEUR/USD: Under pressure
The FXTM brand provides international brokerage services and gives access to the global currency markets, offering trading in forex, precious metals, Share CFDs, ETF CFDs and CFDs on Commodity Futures. Trading is available via the MT4 and MT5 platforms with spreads starting from just 1.3 on Standard trading accounts and from 0.1 on ECN trading accounts. Bespoke trading support and services are provided based on each client's needs and ambitions - from novices, to experienced traders and institutional investors. ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), with license number 185/12, licensed by South Africa's FSB with FSP number 46614, and registered with the UK FCA under reference number 600475. FT Global Limited is regulated by the International Financial Services Commission (IFSC) with license numbers IFSC/60/345/TS and IFSC/60/345/APM.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.