There is growing confidence in the markets that the economically developed countries in Asia, Europe and North America, which have been hit hard by the coronavirus pandemic, are beginning to not only recover, but also show economic growth. This is most noticeable in China, where positive economic data were published first earlier. Finally, Europe, as well as the United States, began to show growth in July, as indicated by the values of important economic indicators presented on Wednesday.
This day was filled with the publication of data, we will highlight only a few of them that vividly confirm our rhetoric. This is the growth of retail sales in the eurozone, which noticeably added in June by 1.3% against the decline in the previous period under review by 3.1%, the PMI in the UK, which jumped to 56.5 points in July against 47.1 points a month earlier, confidently moving into the growth zone. And of course, these are the values of business activity indexes (PMI) in the services and non-manufacturing sectors. The indicators jumped to 50.0 points and 67.2 points, respectively. As for the values of the purchasing managers' index for the US non-manufacturing sector from ISM, they were also at their best, having risen to 58.1 points from 57.1 points.
All of the above clearly indicates the beginning of a radical change in perceptions in the investor environment regarding the prospects for the world economy. It seems that we can expect an explosive growth in economic activity, which is confirmed by a strong increase in the cost of crude oil, as well as an increase in demand for industrial metals, primarily copper.
We believe that if such sentiments persist and given the fundamental weakness of the US dollar, the value of commodity assets traded in dollars will only increase. This process will be twofold. On the one hand, the growing demand for commodity and raw material assets during the growth of the world economy will stimulate the rise in prices, and on the other hand, the weakening of the dollar will also contribute to an increase in the nominal value of assets.
In this case, we continue to assert that the global depreciation of the dollar will continue with short corrective stops. Its decline may only strengthen this week in the wake of the publication of employment data from the US Department of Labor. If they still confirm the consensus forecast of the growth in the number of new jobs at 1.600 million, then this will be a new signal for the continuation of the sell-off of the US currency.
Another important signal supporting the demand for risky assets with a simultaneous weakening of the dollar is a strong rise in Treasury yields. So, on Wednesday, the yield on the benchmark of 10-year Treasuries increased by more than 7.0% at the moment, approaching the level of 0.55%.
Forecast of the day:
The EUR/USD is likely to consolidate in the range of 1.1700-1.1900 by the end of this week in anticipation of the release of US employment data, but if the upper border of the range is broken today, then the pair will go to the level of 1.1970.
The GBP/USD is likely to remain in the range of 1.2980-1.3160 as well. We do not expect the Bank of England's monetary policy decision to change the balance of power in the pair. It, just like EUR/USD, can break the upper border of the range on the growth of demand for risky assets and continue to rise to 1.3260.