Majors Overviews

In the tabs below we give our current fundamental overview of the major currencies. These will be updated weekly, or after a significant shift in market sentiment.

United States of America

Currency Info
United States Dollar (USD)
AKA – Buck, Greenback, Dollar

Central Bank Info
Federal Reserve (FED)
Head – Jerome Powell
Next Meeting – July 29, 2020

Links
Federal Reserve Website
Monetary Policy Report, June 2020

Fed Inflation Target 
2.00%

Inter-market Factors To Watch
US Yields, Global Equities

US Treasury Yields (2Y & 10Y)

 

 

 

Bankpips Current Outlook
We are currently medium term bullish the USD.

The USD dollar is largely being driven by the overall risk tone of the market. Since we remain bearish risk, our outlook for the dollar is bullish. This outlook is completely dependent on our outlook for global equities and risk tone. Should risk tone stay positive, the dollar would remain pressured as investor flows would likely move into high beta FX. 

Data is less significant right now due to the rise in Covid-19 cases that threaten further lock downs and restrictions in the US. The Fed has taken extreme measures to liquefy the markets in attempt to avoid another financial crisis, but have done very little to address the current economic crisis the country is currently facing. We believe a second round of Fed actions would be less impactful and likely largely shrugged of by the markets. 

Monetary Policy – Dovish Hold

Current policy rate – 0.00 – 0.25%
Latest Changes – March 3, 2020 (-50bps), March 15, 2020 (-100bps)

  • Buying unlimited quantities of U.S. Treasuries, mortgage-backed and agency securities after initially announcing an additional $700 billion
  • Buying municipal bonds, corporate bonds and ETFs
  • Dollar swap lines set up with several major central banks
  • $2.3 trillion in loan arrangements for local governments, small and mid-sized businesses
  • Offers to buy bonds of up to three years’ duration from counties with as few as 500,000 residents and cities with as few as 250,000 residents


Growth 
The US economy shrank by an annualized 5 percent in the first quarter of 2020, in line with the previous estimate and ending the longest period of expansion in the country’s history, final figures showed. It is the biggest drop in GDP since the last quarter of 2008 as the Covid-19 pandemic forced several states to impose lockdown measures in mid-March, throwing millions of people out of work. With the third estimate, an upward revision to nonresidential fixed investment was offset by downward revisions to private inventory investment, personal consumption expenditures (PCE), and exports.

Employment 
The US economy added 4.8 million jobs in June, the most on record and beating expectations of 3 million. It follows an upwardly revised 2.7 million rise in May reflecting a partial resumption of economic activity that had been curtailed due to the coronavirus pandemic in April and March when employment fell by a total of 22.2 million in the 2 months combined. However, the job market still has a long way for a full recovery. Many economists believe the numbers do not capture the full scale of job losses as many are being still classified as employed but are absent from work. In addition, several states are scaling back or pausing reopening efforts to respond to the second wave of coronavirus infections and more people may lose their jobs.

The US unemployment rate dropped to 11.1 percent in June 2020, easing further from an all-time high of 14.7 percent reached in April and remaining below market expectations of 12.3 percent, as many people returned to the labor market following weeks of coronavirus-induced restrictions. The number of unemployed persons fell by 3.2 million to 17.8 million, while employment rose by 4.9 million to 142.2 million. Although unemployment fell in May and June, the jobless rate and the number of unemployed are up by 7.6 percentage points and 12.0 million, respectively, since February.

Wages in the United States decreased 5.66 percent in May of 2020 over the same month in the previous year.

Inflation
The annual inflation rate in the US eased to 0.1% in May of 2020 from 0.3% in April and below forecasts of 0.2%. It is the lowest inflation rate since September of 2015, mainly due to a 33.8% plunge in gasoline cost. Also, prices of apparel went down 7.9% and transportation services declined 8.7% as many stores remained closed and Americans were forced to stay at home due to coronavirus lockdown restrictions. On the other hand, food inflation accelerated to 4%, the highest since January of 2012, with food at home prices jumping 4.8%. On a monthly basis, consumer prices were down 0.1% after falling 0.8% in April and compared to forecasts of a flat reading. Declines in the indexes for motor vehicle insurance, energy, and apparel more than offset increases in food and shelter indexes. Annual core inflation slowed to 1.2% while the monthly index was down 0.1%.

Consumer prices in the US were down 0.1 percent month-over-month in May of 2020 after falling 0.8 percent in April and compared to forecasts of a flat reading. Declines in the indexes for motor vehicle insurance, energy, and apparel more than offset increases in food and shelter indexes. Excluding food and energy, the core index also fell 0.1 percent.

The personal consumption expenditure price index in the United States rose 0.1 percent month-over-month in May 2020, rebounding from a 0.5 percent fall in April. Cost of services went up 0.2 percent, following a 0.2 percent decline in April while prices of goods were unchanged after dropping 0.9 percent. Year-on-year, the PCE price index advanced 0.5 percent, easing from an upwardly revised 0.6 percent gain in the prior month. Excluding food and energy, PCE prices rose 0.1 percent, following a 0.4 percent decline in April and above market expectations of a flat reading. Year-on-year, core PCE inflation was steady at 1 percent.

Current USD Futures Positions

European Union

Currency Info
European Euro (EUR)
AKA – euro, single currency

Central Bank Info
European Central Bank (ECB)
Head – Christine Lagarde
Next Meeting – July 16, 2020

Links
ECB Website
Meeting Accounts, June 2020

ECB Inflation Target 
<2.00%

Inter-market Factors To Watch
USD, Bund Yields, Oil

Germany & France Yields (2Y & 10Y)

 

 

Bankpips Current Outlook
We are currently medium term bullish the USD.

The USD dollar is largely being driven by the overall risk tone of the market. Since we remain bearish risk, our outlook for the dollar is bullish. This outlook is completely dependent on our outlook for global equities and risk tone. Should risk tone stay positive, the dollar would remain pressured as investor flows would likely move into high beta FX. 

Data is less significant right now due to the rise in Covid-19 cases that threaten further lock downs and restrictions in the US. The Fed has taken extreme measures to liquefy the markets in attempt to avoid another financial crisis, but have done very little to address the current economic crisis the country is currently facing. We believe a second round of Fed actions would be less impactful and likely largely shrugged of by the markets. 

Monetary Policy – Dovish Hold

Current policy rate:  0%
TLTRO rate: -1.00% 
Latest Changes – March 12, 2020 (-25bps), April 30, 2020 (-25bps)

  • 750 billion euros in additional asset purchases, taking the total to about 1.1 trillion euros this year, after initially adding 120 billion euros to its existing asset-purchase programme
  • Removes cap on how much in bonds it may buy from any euro zone member country
  • Launches a new loan scheme called Pandemic Emergency Longer-Term Refinancing Operations or PELTROs
  • Increases the size of its Pandemic Emergency Purchase Programme to 1.35 trillion euros from 750 billion euros and extends it until June 2021 at least


Growth 
The European Commission lowered its GDP forecasts for 2020 and 2021, saying that the lifting of COVID-19 lockdown measures in some countries was proceeding less swiftly than it had initially predicted. The EU executive said the bloc would shrink by a record 8.7 percent this year, before rebounding by 6.1 percent in 2021, compared with early May estimates of a 7.7 percent contraction in 2020 and a 6.3 percent recovery next year. Among the bloc’s largest economies, Italy and Spain are seen posting the steepest contraction rates, with the GDP falling by 11.2 (vs -9.5 percent seen in May) and 10.9 percent (vs -9.4 percent seen in May), respectively. France’s economy is forecast to shrink 10.6 percent (vs -8.2 percent seen in May), while Germany’s GDP will probably drop by 6.3 percent (vs -6.5 percent seen in May). The Euro Area economy contracted by 3.1 percent from a year earlier in the first quarter of 2020.

The Eurozone economy shrank by 3.6 percent on quarter in the first three months of 2020, compared with preliminary estimates of a 3.8 percent contraction and the previous period’s 0.1 percent growth. It was still the steepest contraction on record as a coronavirus lockdown from mid-March forced non-essential businesses to close and consumers to stay at home. Among the bloc’s largest economies, Germany’s GDP contraction was the sharpest since 2009, while France, Spain and Italy economies shrank the most on record. Germany, France and Italy all entered a recession.

Employment 
The number of employed persons in the Euro Area declined by 0.2 percent on quarter to 160.4 million in the first three months of 2020, in line with preliminary estimates. It is the first fall in employment since the second quarter of 2013 due to lockdowns and business closures imposed by many countries to fight the coronavirus pandemic. Employment went down in France (-0.2 percent), Italy (-0.3 percent) and Spain (-1 percent) and was flat in Germany. The sharpest decline was seen in agriculture (-1.4 percent) while the information and communication sector had the strongest increase (0.7 percent). While the effect of the COVID-19 pandemic on employment was mitigated by government support schemes, the impact on hours worked is generally much more pronounced, with the number of hours worked falling by 3.1 percent. Year-on-year, employment rose 0.4 percent in the first quarter of the year.

The Euro Area seasonally-adjusted unemployment rate edged up to 7.4 percent in May 2020, remaining close to March’s record low of 7.1 percent and below market expectations of 7.7 percent, as the governments’ measures to protect jobs during the coronavirus crises along with an increase in the number of inactive people due to the coronavirus crisis have been supporting the labor market. The number of unemployed persons increased by 159 thousand to 12.146 million, with most countries across the bloc remaining under COVID-19 containment measures. Among the bloc’s largest economies, the highest jobless rates were recorded in Spain (14.5 percent), France (8.1 percent) and Italy (7.8 percent), while the lowest was observed in Germany (3.9 percent). The youth unemployment rate, measuring job seekers aged 15 to 24, went up to 16.0 percent from 15.7 percent in April. Considering the European Union as a whole, the jobless rate was 6.7 percent in May, up from 6.6 percent in April.

Wages & salaries in the Euro Area grew by 3.4 percent over a year earlier in the first quarter of 2020, following an upwardly revised 2.4 percent gain in the previous period. It was the largest rise in wages & salaries since the second quarter of 2009. The non-wage component rose by 3.6 percent, faster than a 2.2 percent increase in the last quarter of 2019.

Inflation
The annual inflation rate in the Euro Area is expected to pick up to 0.3 percent in June 2020 from a four-year low of 0.1 percent in the previous month and above market expectations of a 0.1 percent gain, a flash estimate showed. Main upward pressure should come from services (1.2 percent vs 1.3 percent in May), non-energy industrial goods (0.2 percent, the same as in May) and food, alcohol & tobacco (3.1 percent vs 3.4 percent). At the same time, energy prices are seen falling at a softer pace (-9.4 percent vs -11.9 percent). The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, is likely to ease to 0.8 percent from 0.9 percent in the prior month. On a monthly basis, consumer prices are expected to increase 0.3 percent, reversing a 0.1 percent decline in May.

The Consumer Price Index In the Euro Area increased 0.30 percent in June of 2020 over the previous month.

 

 

Current EUR Futures Positions

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