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U.S. Dollar Continues to Slide

August 6, 2020

Dollar

Over the past month, investors have swooped for commodities, with all-time highs being reached for everything from gold to the tech-giants stock’s, to bonds. This has pushed yields down to record lows. Further economic stimulus looks highly likely, with Treasury Secretary Mnuchin saying he hoped to see an agreement by the end of the week for the next ‘Phase IV’ economic aid package. US Stocks have opened in the positive, with European stocks also climbing to one-week highs.

The USD is trading lower, a reflection of the broader sell-off seen over the past few weeks. Adverse sentiment towards the dollar has been fuelled further by a big gap in the ADP employment report which only showed a slight gain of 167k jobs, way off Wall Street estimates of a 1.2 million rise. Despite June’s payroll count was revised to a much higher number of 4.3 million from the initial report of 2.4 million, the employment market is still massively short of the 19.7 million jobs lost in March and April, even when taking into account May’s 3.3 million increase.

Employment numbers have been unpredictable during the pandemic with issues around data collection and classification. The ADP number has also failed to offer a reliable signal for the upcoming Non-Farm payroll report, with the initial ADP estimates for May and June particularly low.

All major currencies are rising against historically strong USD. The EUR rose by 0.73% yesterday. Final PMI figures were slightly lower in Germany and France, but this has had little impact on the single currency’s climb yesterday.

Consolidation around $1.18 has given bulls time to pause for breath and another test of $1.19 is near. July’s high was just above at $1.1909 before the market moved towards $1.20. The mid $1.17s should offer strong support if prices falter.
The GBP’s value has followed the EUR’s growth against the USD and looks good for more upward movement has broken the $1.31 mark. Friday’s high at $1.3170 is now the target, although the GBP is in heavily overbought territory.

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