Time to trade in currencies

This may be an appropriate time to focus on trading in currencies, the opportunities with Reserve Bank of Australia (RBA) announcing its monetary policy. There are two other central banks meetings scheduled this week.

On top of these, report on non-farm payrolls to be released on Friday will be the most market moving as the United States is expected to report the worst month for job losses ever. However, before we get to the end of the week report, the USD and the broader financial markets will be taking their cue from the White House and other economic reports that will provide more insight.

On Monday, currencies and equities traded lower during the first half in the US, but recovered losses by the end of the day. The big story of the day was escalating tensions between the US and China. President Trump accused China of suppressing and covering up the virus – he said “we’re going to be giving a very strong report as to exactly what we think happened,” and “tariffs would be the ultimate punishment” on China. The UK joined in pressuring China to answer questions over the coronavirus outbreak.

A renewed trade war is the last thing the global economy needs right now, but it seems that the relationship between US and China will deteriorate further in the days ahead. The prospect of soft economic data from all corners of the world includes US non-manufacturing report, likely to be another dampener.

If USD strengthened against EUR CHF and NWD, it also weakened against JPY, AUD and CAD. The White House is talking about more stimuli and if it becomes reality, it could mitigate the declines in currencies and equities. President Trump is prepared to back additional stimuli, if needed.

GBP should remain under pressure ahead of the Bank of England’s monetary policy announcement and Quarterly Inflation Report. Between COVID-19 and the stressed trade negotiations between the EU and UK, the central bank will have no choice but to lower its economic projections.

This is not a big week for EUR, but investors should be watching the headlines closely as Chancellor Merkel discusses reopening the German economy with state leaders on Wednesday. If nothing meaningful comes out of that, EUR will trade on the market’s appetite for USD.

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