Trump Election Delay Tweet, US GDP Record Plunge Slam Dollar

Summary: The Dollar extended its slide after US Q2 GDP plunged a record 32.9% annualized rate, slightly better than expected (-34.5%). It was still the deepest drop since the government began records in 1947. A tweet by President Trump raised the possibility of a delay in the US presidential election and heightened the growing political uncertainty in America. The failure of US lawmakers to agree a new coronavirus bill added further weight on the Greenback. The Euro extended its advance to 1.1848 from 1.1795, fresh 25 months highs despite a worse-than-expected contraction in Germany’s Gross Domestic Product, at -10.1% (-9.0% forecast). Sterling broke up through 1.30 (1.2995 yesterday) to peak at 1.3103, not seen since early March. This time the Greenback’s advance was not broad based. Against the Canadian Loonie, the US Dollar rose 0.57% to 1.3420 (1.3337) due to a slump in Crude Oil prices. The Australian Dollar shrugged off weaker-than-expected Building Approvals data, rebounding off its low at 0.7121 to finish at 0.7195 (0.7188 opening yesterday). Emerging Market currencies were mixed against the Greenback. USD/ZAR (Dollar-South African Rand) was up 1.11% to 16.74 (16.53) while the Dollar slipped against the Thai Baht (USD/THB) to 31.35 (31.48). Wall Street stocks were mixed. The DOW slipped 0.25% to 26,510 (26, 577) while the S&P 500 was up 0.3% to 3,275 (3,265). The benchmark US 10-year treasury yield eased to 0.55% (0.57%). Germany’s ten-year bond rate was 4 basis points lower to -0.54%.

Reuters Graphics - US Advance Q2 GDP - 31 July 2020
Reuters Graphics – US Advance Q2 GDP – 31 July 2020

Other data released yesterday saw Australia’s Building Approvals fall to -4.9% in July, weaker than expectations of -2.0%. The Eurozone’s Unemployment rate was at 7.8%, worse than forecasts at 7.7%. The number of Americans claiming Unemployment benefits rose to 1.434 million in the latest week from a previous 1.416 million, but better than forecasts at 1.440 million.

On the Lookout: Despite a better-than-forecast slump in US Q2 GDP, it was still the deepest contraction since 1947 and underscored the economic impact of the coronavirus. President Trump’s tweet which raised the possibility of delaying the November election was the straw that boke the camel’s back for the US Dollar. Political uncertainty has always been a kryptonite for currencies and the failure of the US to control the growing outbreak of Covid-19 presents a bleak outlook.

FXFactory - German Prelim. GDP - 31 July 2020
FXFactory – German Prelim. GDP – 31 July 2020

Germany’s worse than expected GDP was ignored by FX who continue to drive the Euro higher. That faces a test today with the release of Euro area and Eurozone GDP reports. Virus cases from a second wave continue to rise in Spain, France and Italy which cannot be ignored and bears watching.
Today sees Japanese data kick off Asia with its Preliminary Industrial Production, Unemployment rate, Consumer Confidence and Housing Starts. Chinese July Manufacturing and non-manufacturing PMI’s will be closely watched. Australia releases its Q2 PPI and Private Sector Credit data. Europe sees the release of Spanish, Italian, French, and Eurozone GDP numbers. Canada also releases its GDP report. The US rounds up a busy data day with its Personal Spending and Chicago PMI reports.

Trading Perspective: It seems like all doom and gloom for the US Dollar following the release of yesterday’s GDP data and the political uncertainty caused by Trump’s election delay tweet. There is also uncertainty surrounding the US fiscal package due to the inability of the Republicans and Democrats to agree over the coronavirus bill. However, the situation in Europe and other parts of the world are not getting better. The spotlight falls on today’s release of Chinese, Euro area and Eurozone economic data. Coronavirus cases continue to rise in Spain, Italy, France and even Germany. In Asia, Australia is dealing with its own spike in Covid-19 infections, with new cases in Sydney creeping higher. In Southeast Asia, Indonesia and the Philippines are struggling to contain new outbreaks. India, Pakistan, and Bangladesh continue to spiral upwards.
This may see a corrective decline in the Euro, already extremely overbought, as well as other currencies with flows back into the Greenback. We look at a few currencies.

AUD/USD – Grinds Higher Even as Virus Count Climbs, China PMI’s Up Next

The Australian Dollar rebounded from its overnight low’s yesterday at 0.71207 to finish in New York at 0.7198. In early Asia, the Aussie extended its climb higher, setting currently at 0.7203. The weaker US Dollar has once again rescued the Aussie Battler. Yesterday’s Australian economic data releases saw Building Approvals fall to -4.9%, weaker than median forecasts for a -2.0% fall. Australia’s new coronavirus cases continue to rise with new hotspots appearing across Sydney. Victoria continues to struggle to control its own outbreak where 723 new cases and 13 deaths were reported yesterday.

AUDUSD H1 Live Charts - 31 July 2020
AUDUSD H1 Live Charts – 31 July 2020

The spotlight today falls on Chinese Manufacturing and non-manufacturing PMI’s (11.30 am Sydney, 0.130 GMT) as well as Australia’s Q2 PPI report. China’s Manufacturing PMI is expected to ease in July to 50.8 from 50.9 in June. Non-Manufacturing PMI’s are forecast to slip from 54.4 to 51.2. Australia’s Q2 PPI is expected to improve to 0.3% from Q1’s 0.2%. A disappointment in the data coupled with the growing coronavirus count in the country will keep a lid on the Aussie.

AUD/USD has immediate resistance at 0.7220 followed by 0.7250. There is immediate support for the Battler at 0.7170 followed by 0.7140 and 0.7120. Look for consolidation today within a likely 0.7120-0.7220 range. Prefer to sell rallies, we could see further corrective moves lower today.

EUR/USD – Jumps to April 2018 Highs in Early Asia, Risk Grows for Set-Back

The Euro accelerated its move north in early Asian trade after consolidating to close at 1.1848 in New York. EUR/USD hit a fresh 2018 high at 1.1889 before easing to settle at its current 1.1875. The catalyst is still the weakening US Dollar given the recent Trump tweet and the failure of US lawmakers to agree a much-needed coronavirus stimulus bill. EUR/USD has climbed from 1.14-1.18 in two weeks and the speculative futures market is extremely overbought. Overnight Germany’s GDP slumped to its worst level in at least 50 years. German 10-year bund yields fell by 4 basis points to -0.54%, outpacing the drop in its US counterpart which was 2 basis points lower.

EURUSD H1 Live Charts - 31 July 2020
EURUSD H1 Live Charts – 31 July 2020

Today the Euro faces a further test with the release of French, Italian, Spanish and Eurozone Q2 GDP’s. Coronavirus cases have also been rising in Spain, France, and Italy. EUR/USD faces immediate resistance at the 1.1900 level followed by 1.1930. Immediate support can be found at 1.1840 followed by 1.1800 and 1.1770. The shared currency remains vulnerable to a sharp pullback. Look to sell rallies in a likely 1.1750-1.1900 range.