The real marker for the EUR/USD this summer was the drop in the dollar. The dollar index, which is a benchmark for the market, has been down 3.7% since the beginning of the year, which may surprise given the global recession and pandemic environment that, in normal times, should have been favourable to the USD because of its role as a safe haven. It is clear that market participants are moving away from the US dollar due to uncertainties weighing on the economic recovery in the United States (the negotiations in Congress over a new stimulus plan are creating an atmosphere of anxiety) in addition to the continued spread of the pandemic in many states that has a direct negative impact on economic activity. We believe that the weak dollar will still be the driver of the appreciation of the euro in the coming weeks, much more than European economic results. In fact, our EUR/USD target is maintained at 1.20 in the short term.
As is also the case against the Swiss franc (CHF), the Canadian dollar (CAD) and the Australian dollar (AUD), the euro lost some ground in August against the pound sterling. However, the pair has not crossed a strategic threshold and continues to hover around the psychological limit of 0.90. On both sides of the Channel, the news has centred on the Brexit process. A few days ago, Brussels suggested that a second European Council, after the Council scheduled for 15 and 16 October, could take place in November or December in order to finalise the UK’s exit from the EU. As we have been highlighting for several months already, we believe that an agreement will be reached at the last minute, around mid-December or even the end of December, which means that the volatility surrounding the EUR/GBP pair could increase sharply at the end of the year.
In August, the euro posted the best monthly performance against the Japanese yen. Unsurprisingly, the sharp decline in political risk and the strong performance of equity markets around the world have helped encourage a decline in the Japanese currency, which has traditionally served as a safe haven for market participants. There have been a few hiccups in China-US ^trade relations, but it seems the market is now used to the Trump administration’s pressure on Beijing. Everything suggests that risk appetite should still be the norm in September, judging by the overwhelming optimism of stock investors.
The EUR/CHF pair practically stalled in August against a background of low volatility (moving within a bound of around 100 pips) and lack of risk aversion. It is therefore unsurprising that the foreign exchange interventions of the Swiss National Bank (SNB) were significantly reduced last month. According to our estimates, which are based on changes in deposits with the central bank, less than CHF 7 billion were used to reduce the appreciation of the Swiss currency over the reporting period. For now, the SNB's policy of avoiding a collapse of the EUR/CHF exchange rate below the symbolic threshold of 1.05 is working perfectly and everything suggests that in the months to come it will continue to be just as effective.
The continued rebound in commodities and in particular energy prices helped the Canadian dollar rise against the euro over the past month. On a monthly basis, Brent posted a gain of 3.47% while WTI gained 3.27%. As a result, EUR/CAD was down 1.25% in August after reaching an annual high of 1.5973 at end-July. As long as the outlook for energy prices is good, the bearish movement in the pair may continue, with the support area in sight at 1.5340.
Same scenario as for EUR/CAD. The EUR/AUD pair is particularly correlated with the evolution of commodities whose prices have increased considerably in recent weeks. This resulted in a 0.92% decline in the pair in August. If the upward movement in commodities continues, the pair could quickly rally to its July lows, namely the 1.6220 zone.
No real surprise for the EUR/CNH pair (reminder: this is the offshore euro/yuan pair) which followed the movement initiated by many other currency pairs in August. It was down 1.07% on a monthly basis with a low of 8.1222. It is likely that the downward trend will continue in the coming weeks. China is more advanced in the post-containment economic recovery phase than Europe, which is facing an upsurge in the number of cases of people infected with the virus in some regions, which could be a significant differentiator favouring a rise in the CNH against the euro.
| DATE | CURRENCY | EVENT |
|---|---|---|
| 01/09 | USD |
ISM Manufacturing Index in the United States for the month of August |
| 02/09 | USD |
Survey of private employment in the United States (ADP) |
| 03/09 | EUR |
Presentation of the French Recovery Plan |
| 04/09 | USD |
US Jobs Report for August (NFP) |
| 09/09 | CAD |
Meeting of the Bank of Canada |
| 10/09 | EUR | Meeting of the European Central Bank |
| 16/09 | USD |
Federal Reserve Meeting and Economic Projections Update |
| 17/09 | GBP |
Bank of England Meeting |