Euro and pound to rise, on the grounds of a weak US labor market report. However, pound may drop slightly after the Bank of England discuss decisions on the UK monetary policy, with which if no new measures are announced, demand for the pound could decrease, as the recent upward trend has more to do with the weakening US dollar than with the strength of the UK economy and the pace of its recovery. Thus, while yesterday's data on the UK services sector came out good enough, a V-shaped jump in economic recovery after the pandemic is hard to be counted on.
The recent reports on the US labor market troubled investors as the figures suggest a slowdown in recovery, which creates additional problems for the economy. If this continues, economic recovery in the United States may become even slower in the third quarter of this year.
Data released by ADP indicated that the number of jobs in the US private sector grew by only 167,000 in July, whereas economists predicted an increase of more than 1 million. Indeed, recovery is present, but the figure is still much lower than pre-crisis levels. Moreover, job cuts recorded in the wake of the pandemic was 19.6 million.
Today, a report on weekly unemployment claims in the US will be published, in which if the indicator grows, investor sentiment will be hit severely, damaging the belief on safe assets. As for the Non-Farm Employment Change Report, data will be released this Friday.
Meanwhile, trade reports between the US and other countries delighted investors, as a significant increase was noted in exports, which suggests that the global economy is beginning to gradually bounce back and emerge from the recession caused by the coronavirus pandemic. According to a report by the US Department of Commerce, the foreign trade deficit in June decreased by 7.5% compared to May, amounting to $ 50.7 billion. Exports rose 9.4% to $ 158.3 billion, and imports increased by 4.7% to $ 208.9 billion. Economists had expected the June deficit to be $ 50.3 billion. However, even despite the recovery in trade flows in June this year, the figures are still significantly below the levels observed in February.
Another important report on the US services sector contributed to the rise of demand for risk assets, as the recovery helped the country have a more active GDP growth in the second half of the year. According to the report published by ISM, PMI for the non-manufacturing sector rose to 58.1 points in July, while economists expected the index to reach only 55 points. Index values above 50 indicate an increase in activity.
Yesterday, the US Department of Treasury made a number of statements regarding the need to increase the scale of auctions on bonds with different maturities, amid the issue of unprecedented demand for borrowing. Since the government is expected to continue and maybe even increase the pace of its borrowing, which is understandable given the unprecedented growth in government spending due to the coronavirus pandemic, the ministry said that auctions for long-term government bonds with maturities of 7, 10, 20 and 30 years will be increased.
As for the Fed, Vice Chairman Richard Clarida said that he expects the economy to grow in the third quarter of this year, and if the virus still continues to persist, which will give stronger long-term damage, the Fed is ready to adjust its instruments to help the economy. Clarida also said that problems with inflation are not expected in the near future, as very powerful disinflationary forces keep rates at low levels around the world, and consumption growth remains rather subdued. As a result, it will take some time to return to the level of activity observed in February, and the economy itself will return to pre-crisis levels at the end of 2021.
Thus, for the technical picture of the EUR/USD pair, the bulls have all the cards in their hands today, and a breakout from the resistance level of 1.1905 will surely push the quotes to the 20th figure. However, before that, it is necessary to make sure first that the data on the US labor market comes out good despite the recent rise in new coronavirus infections, because a decreased demand for risk assets will return the EUR/USD pair to the level of 1.1810, after which the lower limit in the 1.1720 level will be updated.
USD/CAD
The Canadian dollar continues to rise amid increasing oil prices, even though a sharp jump in trade deficit was recorded. According to the data, deficit on foreign goods increased to 3.19 billion Canadian dollars in June, as exports rose to 17.1%, while imports rose to 21.8%. Economists forecasted a deficit of 500 million.
Meanwhile, for the technical picture of the USD/CAD pair, the key level for today is the support level of 1.3235, with which if there is no active fall after a breakout of this area, it is best to abandon short positions and wait for an upward correction to the highs of 1.3300 and 1.3370. If the bulls do not show activity after a test of the price level 1.3235, a further decline will occur to the lows of 1.3190 and 1.3120.