Analysts at HSBC believe that the near-term driver for gold is US Treasury yields. They consider COVID-19 concerns, monetary and fiscal stimulus support gold.

Key Quotes: 

“Our precious metals analyst thinks a stronger USD could be a block for gold in the longer term. Normally, gold trades inversely with the USD. But for many months it has tended to trade directionally with the USD. We have submitted that this may be because investors are looking for safe havens and have moved into the USD, US Treasuries and gold simultaneously. If we enter a process of normalization, the USD and gold may revert to their more traditional inverse relationship. We think the USD is neither going to enter a bear or bull market, but will instead be firm which would present headwinds to gold rallies.”

“Currently, the key for gold is not the USD, our precious metals analyst believes, but yields. Gold has been sensitive to the US 10-year Treasury yield. The last drop in gold below USD1,700 per ounce earlier this month was accompanied by a jump in the US 10-year Treasury yield to 0.95%.”

“Gold can give up more ground near-term. But accumulated risks, combined with long-term stimulatory monetary and fiscal spending, will likely put a near-term floor on gold prices.”
 

  • USD/CAD stays directionless on Friday amid thin trading conditions.
  • USD/CAD is down more than 100 pips for the week.
  • WTI remains on track to settle above $40.

The USD/CAD pair is moving sideways below 1.3600 for the third straight day on Friday as trading conditions remain thin due to the Independence Day holiday in the US. As of writing, the pair was unchanged on the day at 1.3562. On a weekly basis, the pair is down more than 100 pips and is looking to snap its three-week winning streak.

CAD capitalizes on rallying crude oil prices

The upbeat macroeconomic data releases, especially PMI figures, from major economies such as Canada, the US, China and Germany this week eased concerns over a dismal energy demand outlook. Moreover, the sharp witnessed in the US crude oil inventories provided an additional boost to crude oil prices.

With the barrel of West Texas Intermediate (WTI) gaining more than 5% this week, the commodity-sensitive loonie preserved its strength against the greenback. 

On the other hand, the surging number of confirmed coronavirus cases in the US helped greenback find demand as a safe-haven. However, the impressive labour market data on Thursday and Wall Street’s main indexes’ strong performance limited the USD’s upside. The US Dollar Index was last seen losing 0.3% on the week at 97.20.

US: Nonfarm Payrolls (NFP) surges by 4.8 million in June, Unemployment Rate falls to 11.1%

Assessing USD/CAD’s outlook, “we expect the level of oil prices will remain key for USD/CAD sensitivity. In other words, if oil keeps pushing higher, we can expect the relationship between oil and USD/CAD to increase,” said Rabobank analysts. “While if we move substantially lower, then we expect the relationship to decrease. As it stands, the relationship has picked up a bit in light of the recent rally and we some small downside for oil prices in the short term which will weigh on CAD.”

Technical levels to watch for

 

  • Dollar Index recovery from 96.80 has been limited below 97.35
  • The dollar remains on the backfoot amid hopes of a quick economic recovery.
  • The DXY has depreciated about 0.5% in the last two weeks. 

Greenback’s rebound from one-week lows at 96.80 is lacking follow-through above the 97.00 level and the Index has stalled below 97.35. The USD recovery witnessed earlier on Friday has lost steam during a quiet American session, with the US equity markets closed for the Independence Day bank holiday.

Post-pandemic recovery hopes are holding the USD down

The US dollar opened the day on a strong footing, fuelled by a moderate risk-off sentiment during the Asian and European sessions. The record increase of coronavirus cases in the US revived fears of a second wave of lockdowns that would curb economic recovery and eased investors’ optimism after Thursday’s upbeat US Non-Farm payrolls data and the bright Chinese services sector activity seen earlier today.

On a longer-term perspective, however, the US dollar remains in a steady downtrend after peaking at 103.00 in mid-March. Investors’ hopes on a quick economic recovery, reflected on the equity markets’ rally, have curbed demand for the safe-haven USD, in favor of riskier assets. In this backdrop, the dollar is set for the second negative week in a row against a basket of the most traded currencies.

 

Key technical levels

On the upside, above 97.35 session highs, the pair might aim towards 97.70 (Jun. 21, 30 highs) and 98.15 (50% Fibonacci retracement of the May-June decline. On the downside, immediate support lies at 96.80 (Jul. 2 low) and below here, 96.40 (Jun. 26 low) and 95.70 (Jun. 10 low).

  • A quiet end for the week amid low volume and volatility across financial markets.
  • EUR/USD moved sideways around 1.1240, keeping the consolidation mode.

The EUR/USD pair is about to end the week hovering around 1.1240, near the same level it had seven days ago. Price action was limited on Friday due to a holiday in the US and the pair moved sideways in a small range.

Economic data from the Eurozone on Friday came in above expectations on Friday but it did not boost the euro. Over the week, despite economic reports, including the upbeat NFP, EUR/USD remained on a consolidation mode moving around 1.1230.

On Wednesday the pair bottomed near 1.1185 but it quickly rose back above 1.1200 while later, on Thursday it climbed to 1.1303 but held above 1.1300 only for minutes. The critical support on the downside now is seen at 1.1190 while on the upside, a firm break above 1.1300 would point to more gains.

Week ahead

Next week, in the Eurozone, consumer confidence data and retail sales figures will be the most important reports, unlikely to impact on EUR/USD. Attention will likely focus on updates about the Recovery Fund. On Thursday, a new Eurogroup President will be chosen

Economic data to be released next week in the US includes the service ISM (Monday) and the weekly jobless claims report (Thursday). Traders will also continue to look coronavirus cases in the US and whether or not the CARES act is extended.

Technical levels

 

 

The South African rand recovered against the US dollar in June. Analysts at MUFG Bank expect the currency to rand to continue to rise versus the greenback at a slow pace. They see USD/ZAR trading in the 16.600-18.000 range during the third quarter. 

Key Quotes:

“The rand has rebounded against the US dollar as it continues to reverse the sell-off in March. The rand has benefitted from the broad-based improvement in investor sentiment towards emerging market currencies. The improvement in financial market conditions is encouraging a further drop in FX volatility which is favourable for high yielding carry currencies like the rand. The rand still remains one of the highest yielding emerging market currencies.”

“The government and the SARB both expect South Africa’s economy to contract sharply this year, by around 7% followed by a modest rebound of between 2% and 4% next year. The Treasury’s supplementary budget clearly highlighted South Africa’s challenging fiscal position with the budget deficit now expected to widen out to 14.6% of GDP. The government has committed to taking active steps to implement major reforms and consolidate the budget in an attempt to help stabilize debt at just under 90% of GDP by 2023/24. The plan envisages spending reduction and revenue adjustments totalling up to ZAR250 billion over the next two years which could undermine the recovery.”

“In these circumstances, we expect the rand to strengthen modestly in the year ahead but it is subject to downside risks from challenging domestic debt dynamics.”
 

The South African rand recovered against the US dollar in June. Analysts at MUFG Bank expect the currency to rand to continue to rise versus the greenback at a slow pace. They see USD/ZAR trading in the 16.600-18.000 range during the third quarter. 

Key Quotes:

“The rand has rebounded against the US dollar as it continues to reverse the sell-off in March. The rand has benefitted from the broad-based improvement in investor sentiment towards emerging market currencies. The improvement in financial market conditions is encouraging a further drop in FX volatility which is favourable for high yielding carry currencies like the rand. The rand still remains one of the highest yielding emerging market currencies.”

“The government and the SARB both expect South Africa’s economy to contract sharply this year, by around 7% followed by a modest rebound of between 2% and 4% next year. The Treasury’s supplementary budget clearly highlighted South Africa’s challenging fiscal position with the budget deficit now expected to widen out to 14.6% of GDP. The government has committed to taking active steps to implement major reforms and consolidate the budget in an attempt to help stabilize debt at just under 90% of GDP by 2023/24. The plan envisages spending reduction and revenue adjustments totalling up to ZAR250 billion over the next two years which could undermine the recovery.”

“In these circumstances, we expect the rand to strengthen modestly in the year ahead but it is subject to downside risks from challenging domestic debt dynamics.”
 

The euro has pulled back against the pound this week to put an end to the three-week rally seen earlier in June. The Rabobank FX Analysis Team, however, remains bullish on the euro expecting the uptrend to resume, aiming to 0.9200.

 

Key quotes

“The long-anticipated re-opening of England’s hospitality sector and other service-related businesses on July 4 has been accompanied by a somber warning from PM Johnson that the country is ‘not out of the woods yet’.”

“The re-opening should help staunch the wounds of hundreds of businesses. However, the results of several recently published surveys on the UK economy provide grim reading. When this backdrop is layered on top of Brexit uncertainty and the ongoing discussion about negative interest rates in the UK it is little surprise that the pound has been the worst-performing G10 currency over the past month.”

“Looking ahead, both economic and Brexit discussions are likely to feature heavily in the performance of the pound. The longer investors have to wait for signs of compromise from Brexit negotiators, the more chance there is that GBP will slip lower. In the absence of solid progress on a trade deal, we expect EUR/GBP to edge towards 0.92 on a 1-month view.“

The euro has pulled back against the pound this week to put an end to the three-week rally seen earlier in June. The Rabobank FX Analysis Team, however, remains bullish on the euro expecting the uptrend to resume, aiming to 0.9200.

 

Key quotes

“The long-anticipated re-opening of England’s hospitality sector and other service-related businesses on July 4 has been accompanied by a somber warning from PM Johnson that the country is ‘not out of the woods yet’.”

“The re-opening should help staunch the wounds of hundreds of businesses. However, the results of several recently published surveys on the UK economy provide grim reading. When this backdrop is layered on top of Brexit uncertainty and the ongoing discussion about negative interest rates in the UK it is little surprise that the pound has been the worst-performing G10 currency over the past month.”

“Looking ahead, both economic and Brexit discussions are likely to feature heavily in the performance of the pound. The longer investors have to wait for signs of compromise from Brexit negotiators, the more chance there is that GBP will slip lower. In the absence of solid progress on a trade deal, we expect EUR/GBP to edge towards 0.92 on a 1-month view.“

  • A quiet end for the week amid low volume and volatility across financial markets.
  • EUR/USD moved sideways around 1.1240, keeping the consolidation mode.

The EUR/USD pair is about to end the week hovering around 1.1240, near the same level it had seven days ago. Price action was limited on Friday due to a holiday in the US and the pair moved sideways in a small range.

Economic data from the Eurozone on Friday came in above expectations on Friday but it did not boost the euro. Over the week, despite economic reports, including the upbeat NFP, EUR/USD remained on a consolidation mode moving around 1.1230.

On Wednesday the pair bottomed near 1.1185 but it quickly rose back above 1.1200 while later, on Thursday it climbed to 1.1303 but held above 1.1300 only for minutes. The critical support on the downside now is seen at 1.1190 while on the upside, a firm break above 1.1300 would point to more gains.

Week ahead

Next week, in the Eurozone, consumer confidence data and retail sales figures will be the most important reports, unlikely to impact on EUR/USD. Attention will likely focus on updates about the Recovery Fund. On Thursday, a new Eurogroup President will be chosen

Economic data to be released next week in the US includes the service ISM (Monday) and the weekly jobless claims report (Thursday). Traders will also continue to look coronavirus cases in the US and whether or not the CARES act is extended.

Technical levels

 

 

  • AUD/USD looks to end second straight week in positive territory.
  • Market action remains subdued due to Independence Day holiday in US.
  • Reserve Bank of Australia (RBA) will announce policy rate decision next Tuesday.

The upbeat macroeconomic data releases from Australia and China this week helped the AUD gather strength against its rivals. After starting the week near 0.6860 and staying calm on Monday, the AUD/USD pair closed the previous three days in the positive territory and remains on track to extend its winning streak to four days. As of writing, the pair was up 0.3% on a daily basis at 0.6942.

Earlier in the week, the Commonwealth Bank’s Manufacturing and Services PMI figures both came in above the 50 threshold for June to show that the business activity continued to expand in those sectors. “The lifting of restrictions on business operations provided relief to the service sector as firms reopened and individuals resumed consumption,” the Commonwealth Bank noted in its press release.

Moreover, Caixin Manufacturing PMI in China improved to 51.2 in June and Caixin Services PMI jumped to 58.4 from 55 in May, providing an additional boost to China-proxy AUD. 

On the other hand, concerns surrounding the surging number of new COVID-19 infections in the US helped the greenback stay resilient against its rivals and capped the pair’s gains. Despite the upbeat PMI and labour market data from the US, the US Dollar Index pulled away from its weekly lows and now looks to end the week with small losses near 97.20.

US: Nonfarm Payrolls (NFP) surges by 4.8 million in June, Unemployment Rate falls to 11.1%

Focus shifts to RBA meeting

Next week, on Tuesday, the Reserve Bank of Australia (RBA) will announce its policy decision and release the monetary policy statement.

Previewing this event, “since the May meeting, the central bank has sharply slowed the pace of its bond-buying, as fixed income markets began to stabilize, only purchasing government bonds on one occasion,” noted Wells Fargo analysts. “At its meeting next week, we look for the RBA to maintain a steady policy and expect the current cash target rate of 0.25% to remain at its current level for the foreseeable future.”

Technical levels to watch for