During today's Asian trading, the US dollar fell against the main world currencies, while the british pound strengthened after the Bank of England meeting.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell 0.18% from the previous day.

The traders are watching the ongoing negotiations in Washington about a new package of stimulus measures in pandemic coronavirus. The White House and democratic leaders in Congress have reported some progress in discussions, but differences remain over a number of issues.

Vice Chairman of the Federal Reserve Richard Clarida said on Tuesday that he expects the US economy to recover in the 2nd half of 2020. At the same time, in his opinion, activity can return to the levels that were observed before the beginning of the COVID-19 pandemic, until the end of 2021. He also noted that the Federal reserve is ready to change its lending programs to ensure effective support for the economy.

Meanwhile, the Bank of England kept its benchmark interest rate at 0.1% at the end of the August meeting. The Bank of England also decided to leave the volume of the government bond repurchase program at 745 billion pounds.

Meanwhile, the chinese yuan today retreated from a five-month high against the dollar, set the day before, amid signs of increasing tensions between the US and China.

FXStreet reports that Bart Melek, head of commodity strategy at TD Securities, believes the rebalancing of the crude market will come into the next year. He expects WTI to rise toward recent highs just below the $45 mark, however, a higher trade range between $45 and $50 is not likely this year.

“With US demand continuing to recover, crude oil inventories dropping sharply for another week, OPEC+ very likely matching supply in line with demand increases and US production sliding over 2 million b/d since March, the crude market is very likely to rebalance into 2021. This, along with ample risk appetite, an upcoming trillion dollar US stimulus program and a vaccine on the horizon all suggest that WTI crude may test recent highs, moving toward resistance just under $45/bbl.”

“Given OPEC+ will continue to match its sequestered supply to the growing demand and coronavirus risks still remain a major global demand risk factor, a sustained breakout into a higher trading range of $45-50/bbl is unlikely this year.”

eFXdata reports that TD Research discusses the current drivers of the FX markets.

"Expectations of further stimulus bets have sparked a turnaround Tuesday, undermining the USD once again. The catalyst falls to the prospects that US policymakers have made some progress on stimulus discussions. The hopes are that legislation will pass next week, which has offered another dose of fuel for risk sentiment.  Meanwhile, gold has marked new highs while the EUR sits within striking distance of 1.20," TD notes.

"We discuss the shifting correlations of FX to our risk gauge GMRI, highlighting the shifting nature of a safe haven. It will take years to officially challenge the USD's reserve status but that doesn't mean we can't see a major asset allocation shift. Equally important, we note the surge in the USD's beta to MSCI World (ex-US) during the past four years. A sign that equity flows will remain important drivers of FX," TD adds. 

According to provisional results of the Federal Statistical Office (Destatis), real (price adjusted) new orders increased by a seasonally and calendar adjusted 27.9% in June 2020 compared with May 2020. Economists had expected a 10.1% increase. Compared with June 2019, the decrease in calendar adjusted new orders amounted to 11.3%. Excluding major orders, real new orders in manufacturing seasonally and calendar adjusted were 23.8% higher than in the previous month.

Compared with February 2020, the month before restrictions were imposed due to the corona pandemic in Germany, new orders in June 2020 were 11.3% lower in seasonally and calendar adjusted terms.

Domestic orders increased by 35.3% and foreign orders rose by 22% in June 2020 on the previous month. New orders from the euro area went up 22.3%, and new orders from other countries increased by 21.7% compared with May 2020.

In June 2020 the manufacturers of intermediate goods saw new orders increase by 10.6% compared with May 2020. The manufacturers of capital goods saw an increase of 45.7% on the previous month. Regarding consumer goods, new orders rose 1.1%.

New orders in the automotive industry increased markedly in June 2020 (+66.5% on the previous month). However, new orders were still 12.2% lower than in February 2020.

For May 2020, there was a decrease of 10.4% compared with April 2020 thus confirming the provisional result published.  

According to the full statement of the BOE August monetary policy meeting decision, The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. In that context, its challenge at present is to respond to the economic and financial impact of the Covid-19 pandemic. At its meeting ending on 4 August 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to continue with its existing programmes of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, maintaining the target for the total stock of these purchases at £745 billion.

The outlook for the UK and global economies remains unusually uncertain. It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors. The MPC’s projections assume that the direct impact of Covid-19 on the economy dissipates gradually over the forecast period. Given the inherent uncertainties regarding the evolution of the pandemic, the MPC’s medium-term projections are a less informative guide than usual.

UK GDP is expected to have been over 20% lower in 2020 Q2 than in 2019 Q4. But higher-frequency indicators imply that spending has recovered significantly since the trough in activity in April. Payments data suggest that household consumption in July was less than 10% below its level at the start of the year.  Housing market activity appears to have returned to close to normal levels, despite signs of a tightening in credit supply for some households. There is less evidence available on business spending, but surveys suggest that business investment is likely to have fallen markedly in Q2 and investment intentions remain very weak.

Employment appears to have fallen since the Covid-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes. Surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind. In the near term, the unemployment rate is projected to rise materially, to around 7½% by the end of the year, consistent with a material degree of spare capacity.

In the MPC’s central projection, GDP continues to recover beyond the near term, as social distancing eases and consumer spending picks up further. Business investment also recovers, but somewhat more slowly. Unemployment declines gradually from the beginning of 2021 onwards.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2006 (817)

$1.1963 (1214)

$1.1925 (1273)

Price at time of writing this review: $1.1880

Support levels (open interest**, contracts):

$1.1845 (157)

$1.1822 (1294)

$1.1787 (452)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 7 is 65819 contracts (according to data from August, 5) with the maximum number of contracts with strike price $1,1400 (4028);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3262 (2862)

$1.3221 (115)

$1.3186 (533)

Price at time of writing this review: $1.3134

Support levels (open interest**, contracts):

$1.2987 (1384)

$1.2943 (246)

$1.2847 (142)

Comments:

- Overall open interest on the CALL options with the expiration date August, 7 is 21881 contracts, with the maximum number of contracts with strike price $1,3250 (2862);

- Overall open interest on the PUT options with the expiration date August, 7 is 20478 contracts, with the maximum number of contracts with strike price $1,2400 (1511);

- The ratio of PUT/CALL was 0.94 versus 0.92 from the previous trading day according to data from August, 5

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.