Intraday Market Thoughts

CAD Shrugs Off Deficit & Why GBP

by Adam Button
Jul 9, 2020 12:54

Another day, another slide for the US dollar as risk appetite remains neutral to positive and the Fed manages to put out any fires from heightend USD funding. USDX sustained 4 straight monthly declines, the last 3 of which are the "worst triple" since autumn 2017.   Wednesday's Canada deficit numbers were a reminder that this market isn't concerned with runaway fiscal spending. GBP is the day's top performer, while the US dollar lagged as it continues to struggle. US weekly jobless claims are up next and are forecast to remain above 1 mln. Two Premium FX trades were issued yesteday, one of which is GBPUSD --already +140 pips in the green. Ashraf explained in yesterday's Premium video why he would issue the GBPUSD long at 1.2520.  

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CAD Shrugs Off Deficit & Why GBP - Gold Nasdaq Jul 9 2020 (Chart 1)

Leaks suggesting a +$300B fiscal deficit in Canada late Wednesday were borne out as finance minister Bill Morneau reported a shortfall estimate of $342B, smashing records. The numbers were wholly unexpected but the way the loonie shrugged off the deficit was a surprise. Morneau also offered no commentary on when a return to something resembling a balanced budget would come.

USD/CAD fell a full cent on the day to hit a two-week low. It also briefly broke the 200-dma near 1.3500.

The fresh 9-year high in gold at $1808 also underscored the market's attitude towards deficits. There is no end in sight to government spending anywhere. In the UK Wednesday, Chancellor Sunak rolled out another round of targeted stimulus.

The broad market shrugged off a record number of virus cases in the US as well. Tech remains in a roaring bull market and Chinese shares – particularly Chinese tech – are doing the same. If the positive sentiment can last through Friday then the case for more easy-money trades will be strengthened.

Up next is the main US economic release is weekly initial jobless claims. The consensus is for another 1.375m applications for unemployment benefits. The numbers remain staggeringly high but the market has shrugged off unemployment concerns since the high of the pandemic.


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