European PMI data is positive, but nowhere close to optimistic
US dollar FX reserve currency status remains unchallenged
USD starts the week with a strong rally across the board
The US dollar is rallying across the board on Monday against its major counterparts. The greenback is trading higher by almost 0.4% against the EUR and by 0.5% against the GBP. Gains against the JPY are milder at 0.2%, while the AUD is trading lower by 0.6% as of writing.
With all of the negative news for the US dollar priced in after the Federal Reserve’s meeting last week, the FX market is looking for new catalysts. The start of the first trading week of August is not providing much impetus for USD bears. European manufacturing PMIs released earlier this morning were benign when compared to the extent of the declines observed during the first and the second quarter of the year.
The French and German manufacturing PMIs came in at 52.4 and 51.0 respectively. While the figures came in better than expected, the prints were barely above the expansion point at 50.0. Meanwhile trade tensions between the US and China continued to escalate as US President Trump agreed to allow Microsoft to purchase the US operations of TikTok, while the Chinese MOFCOM has launched an anti-dumping investigation into polyphenylene ether imports from the US.
The EUR/USD pair is presently testing the 1.1720-30 area, which was last tested last week just before comments from President Trump for a prospective delay of the US election. Following bipartisan reassurance that any such prospects are remote, the US dollar bottomed out on Friday not before testing the 1.1900 level.
A sustained move below 1.1720 opens up a test of 1.1700 and 1.1650 and 1.1600 to the downside.
A positive manufacturing PMI surprise from the UK didn’t help GBPUSD to trade above the 1.31 figure for a long time this morning. The pair is getting sold-off in tandem with the EURUSD and appears poised to take on the key 1.30 level. A sustained break lower opens the door for a test of the 1.2950 and the 1.29 levels.
The USDJPY pair staged a comeback on Monday morning continuing on the move that started in NY on Friday. The Japanese yen is currently trading above the 106 figure against the dollar and looks constructive for a continuation of the move higher. Earlier during the Asian session the USDJPY touched levels above 106.40 amid rising speculation that the Bank of Japan is helping to prop up the US dollar with direct FX interventions that started last week.
The Australian dollar is tanking today amid news that the largest province in the country, Victoria, is going into a full lockdown mode to arrest the increase in new COVID-19 cases. The province announced a ‘state of disaster’ after reporting 671 new cases overnight.
The AUDUSD pair broke through the key 0.7120 area and is setting sight onto 0.7065-70, which is last week’s low. A move below that opens the door towards 0.7035-40, an area which was the previous high from the 15th of July, before the break above on the 21st.
The rally of the US dollar comes amid growing tensions between the US and China and could be strongly supported by increasing global demand to own US tech stocks as a safe haven in a global economy reshaped by the coronavirus pandemic. Shares of US tech giants Amazon, Apple, Google, Facebook, and the likes continue to outperform the broader stock market.
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