The US dollar got a bid as New York opened
Optimism about fiscal stimulus could underpin another leg higher
ECB Executive Board Member highlights “highly uncertain” outlook
After staging a rally early in the US session, the US dollar ended the first trading day of the month yesterday on the back foot. The rebound in the value of the greenback however is resuming as another US session begins.
The US ISM manufacturing data yesterday came in way above the expansion figure of 50, at 54.2. The number was considerably better when compared to the European PMI indices, which barely registered an expansion.
Ongoing negotiations between the White House and Congress is also underpinning hopes for more fiscal stimulus in the US. While on the surface the event could be priced in, more debt issuance at positive rates in the US could create demand from overseas bond investors, which has been missing lately.
As of writing, the EURUSD is trading just above 1.1761, having tested the 1.1800 mark earlier during the European session. The single European currency is trading flat on the day with the pair gearing up for another test of the solidified support around 1.1700 - a double bottom from the 28th of July and the 3rd of August.
Source: TradingView, ThinkMarkets
A head and shoulders chart pattern has formed with a base around the 1.1700 area and a break lower opens the doors towards 1.1650 and 1.1600. Ongoing negotiations between the White House and Congress could be the catalyst for another leg lower.
The GBPUSD pair continues to drift lower, as the UK is rumoured to consider a lockdown in London after enacting a similar measure in Northern England earlier this week. With the looming Bank of England meeting on Thursday, the pair continues to price in the possibility for a slower economic recovery and consequently more easing.
Cable traded through 1.3000 as of writing, while the USDJPY pair is consolidating its gains from yesterday as bulls prepare for another test of the 106.40-50 area. A break above would open a move towards the 106.70, 107.00 and 107.50 areas.
Fundamental News
The ECB’s Executive Board Member, Philip R. Lane highlighted that despite the recently observed rebound in economic activity, the outlook economic slack remains “extraordinarily high”, while the outlook is “highly uncertain”.
Recent news about failure to contain the coronavirus in some European countries is contributing to a decline in business and consumer confidence. Spain and France have announced over 8,500 and 3,300 new cases today, marking multi-week highs.
French scientific authorities are warning that a second wave of COVID-19 is likely in the autumn or during the winter as temperatures drop and seasonal flu and other viruses spread. Meanwhile US President Trump highlighted the decline in the number of new cases across multiple states and continues to highlight vaccine development. Trump is also dismissing the possibility for more lockdowns down the road.
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