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Green shoots from Barnier and US fiscal package looks to top $1 trillion

GBP - British Pound

There was little in the economic calendar for the UK on Monday and this has caused GBP/USD to snap its seven day winning streak. After the pair reached its 4 ½ month high yesterday afternoon of 1.29 it immediately pushed lower back to the mid 1.28’s. Data was thin so Brexit and events out of the US were the main drivers in this pair.

Brexit developments, or lack of them have hindered Sterling’s move higher but some promising news hit the wires during Monday. The EU’s Chief Negotiator Michel Barnier expressed confidence at a closed-door meeting with member states that a new deal with Britain was possible. Fishing rights still seem to be a major roadblock in talks developing and whilst Barnier’s comments sound promising we still expect the Pounds move to be limited on Brexit negotiations.

GBP/EUR ranges were tight during Mondays trade, a 30 point move across the whole day. The Euro is well supported at the moment so we expect a break above 1.10 not likely with a break below 1.09 the more probable longer term should Brexit talks stall and the coronavirus kept under control across the Eurozone.

Key Movers

EUR/USD had been on a winning streak of late, ever since the announcement of the EU recovery fund. The USD has been heavily sold off as infections continue to rise and the end of the fiscal package looming, essentially losing its status of a safe haven currency. The pair reached a high not seen since September 2018 with a break for 1.18 looking likely. The shared currency got an additional boost from Monday's release of German IFO Business Climate Index, which climbed to 90.5 in July as against the anticipated rise to 89.3 from 86.2 previous. However, the pause button was eventually pressed as the 1.18 level was growing ever closer and a slight retracement was seen as the American session got under way.

With employment benefits due to expire at the end of this week for the US, there is growing concern a new fiscal package wont be approved in time. The new aid proposed is looking to top $1 trillion as the country tries to boost the economy and support the millions of households feeling the effects of the pandemic and yesterday’s news suggested the deal was getting close. If passed, this could be a welcome boost for the Dollar so definitely an event to keep an eye on as talks progress throughout this week. Attention will also be on the FED’s announcement on Wednesday (FOMC press conference), a Dovish tone is to be expected given the recent resurgence in the coronavirus cases and we cannot rule out the possibility of the FED exploring negative interest rates.

Expected Ranges

GBP/USD: 1.2800 - 1.2900 ▲

GBP/EUR: 1.0900 - 1.1000 ▼

GBP/AUD: 1.8000 - 1.8100 ▼

GBP/NZD: 1.9300 - 1.9400 ▼