It’s a busy week in the foreign exchange market, and investors are kicking it off with gains for currencies and equities. Even as U.S. states report an alarming number of new cases and the death rates rise in almost every region, investors shrugged off all coronavirus worries. Their optimism is driven by reports that Pfizer (NYSE:PFE) and Germany’s Biontech Se (NASDAQ:BNTX) gained FDA fast-track status for two of their four vaccines. By speeding up the go-to-market process, these companies could enroll up to 30,000 patients for trials by the end of the month. And if those tests are successful, a vaccine could be developed by the end of the year. Nothing is more potent than a medical solution for the COVID-19 crisis which has affected all corners of society. We hope that the results will be positive, but in the meantime, the reality is that fresh stay-at-home orders may be needed in many states, including Florida, which reported a record 15,300 cases on Sunday – exceeding the worst day ever in New York by more than 3,000.
With that said, facts matter little when sentiment is skewed the other way. For the past month, investors have been nonchalant about the rise in U.S. coronavirus cases, and unless that changes, it has been more fruitful to buy the dips than sell the rallies.
This week’s U.S. economic reports should foster more optimism as inflation and consumer spending tick higher in June. Oil and gas prices increased last month and the low forecast for pickup in retail sales should be easy to beat because further reopenings in June should trigger an increase in spending activity. The same is true for housing. Building permits and housing starts should rebound, but sentiment could turn lower. While the other reports reflect June activity, the University of Michigan Consumer Sentiment index is a measure of confidence in July – a month when new cases started to rise and the nation was swept with fresh coronavirus concerns. Also, a number of U.S. companies report earnings and weak guidance could shift the mood in the markets. USD/JPY rallied for the first time in four trading days. The sustainability of its gains hinges on good data and good earnings.
Thursday’s U.S. retail sales report is one of the most important pieces of data this week but it's not the only market-moving event to watch. Here are the 10 key events to watch in order of potential impact on currency flows with an inclusion of the Fed’s Beige Book as a bonus.
1. U.S. Retail Sales
2. European Central Bank monetary policy announcement
3. Bank of Canada monetary policy announcement
4. Chinese Q2 GDP
5. German ZEW Survey
6. UK Employment
7. UK Retail Sales
8. Australian Employment
9. New Zealand PMI
10. New Zealand CPI
11. Fed’s Beige Book
No changes are expected from any of these central banks, but the euro is strong today and outpacing all other currencies because the European Central Bank is expected to be less pessimistic. Germany’s economic ministry said this morning that its economic low point has passed and France feels consumption is just 5% below normal levels. We expect this outperformance to continue ahead of the rate decision. Sterling on the other hand was one of the few high-beta currencies to trade lower against the U.S. dollar. Most of this week’s economic reports are for the month of May and the prospect of softer data could hold the currency back. All three commodity currencies traded higher, with the Australian dollar leading gains. We are surprised by A$ strength especially after China issued a travel advisory for Australia, a sign that tensions between the two countries are rising.