G10 FX Week Ahead: Summer Lull Going Viral

Summer trading ranges are setting in and we see little scope for G10 FX volatility next week, with second waves still failing to deliver a significant hit to sentiment. News on the EU Recovery Fund and UK spending plans (which may give a time-limited push to sterling) will be in focus while the Reserve Bank of Australia may leave little mark on the Aussie dollar

USD: Questioning the numbers


Week ahead bias Range next week 1 month target



Neutral 96.5000 - 97.8000 95.0000
  • The dollar has gone into consolidation mode, with investors caught between hopes of recovery and fears that the US second wave outbreak will turn into something more deadly.There also remains much uncertainty over the US unemployment situation. Despite the strong June nonfarm payrolls reading, there are still 31.5 million people claiming unemployment benefit and a rise in the next weekly jobless claims number could pour cold water on recent optimism. We also see US Treasury auctions next week and a chance to gauge whether demand is as strong as usual.
  • Apart from the weekly jobless claims data, our team expects to see a strong US June ISM services report on Monday and despite Congress being on a two-week recesss, there will be focus on whether the CARES act is extended, i.e. whether the $600 per week in extra unemployment benefits gets extended beyond the end of July. So far, presidential election polling has had little impact on FX markets and we do not expect that to change until late August/early September. In short, it looks like the summer lull is setting in and rangebound $/Majors looks to be the order of the day.

EUR: EU Recovery Fund compromise?


Week ahead bias Range next week 1 month target



Neutral 1.1170 - 1.1300 1.1300
  • EUR/USD has held up slightly better than we expected – as have the pro-cyclical currencies – which no doubt is being supported by abundant dollar liquidity and perhaps signs that the Chinese activity rebound is continuing. We’re still seeing a negative correlation between the dollar and equities, although as we discussed last week, we wonder whether the US second wave story can start to drive independent dollar weakness.
  • For the week ahead, the eurozone sees the July Sentix confidence reading and May retail sales (both expected to rebound further). Also look out for any updates on the EU Recovery Fund. European Commission President Charles Michel is expected to propose a compromise plan – primarily to get the Dutch on board – and the proposal may be reviewed at the Eurogroup meeting of Finance Ministers on Thursday/Friday. Earlier in the week, the European Commission releases updated economic forecasts on Tuesday.Falling option volatility favours a rangebound EUR/USD over the week ahead, but there’s still the risk that a rising US death toll on the back of a fresh wave in cases prompts a more severe lockdown and a re-connection between Wall Street and Main Street.
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