Unemployment will continue to rise and inflation will remain low for quite a while, but they will recover eventually as the impact of the Covid-19 pandemic fades, Vicky Redwood, senior economic adviser and Paul Dales, chief U.K. economist at Capital Economics say. Below is a selection of their comments from a webinar on ‘Economies After Covid’.
Economies globally face tough times for the next few years due to the coronavirus pandemic, but they should gradually recover, says Vicky Redwood, senior economic adviser at Capital Economics. “We do think it will be quite tough-going for two, three or even four years but once we look even further out our general view is quite optimistic,” she says in a webinar entitled ‘Economies after Covid’.
The Covid-19 pandemic will initially result in lower inflation as the global economy takes a hit but eventually higher inflation will be in store as monetary and fiscal stimulus feed through, says Vicky Redwood, senior economic adviser at Capital Economics. The money being pumped in by central banks via quantitative easing means “a lot of money is being created,” she says. In addition, the fiscal support via government spending programs to help consumers and business should “end up being spent as confidence comes back.” This could lead to “quite significant pick-ups in inflation.” At this point, central banks could reverse QE, raise interest rates or allow higher inflation, she says.
Although most things should return to how they were before the pandemic as the spread of the Covid-19 virus slows, continued could impact business travel and the property market, says Paul Dales, chief U.K. economist at Capital Economics in a webinar entitled ‘Economies after Covid’. “Working from home might stick,” he says. This could result in “permanently reduced business travel,” as well as a reduction in demand for commercial property and greater demand for residential property outside of cities. On the other hand, there will be a greater use of technology within the workplace and a bigger proportion of retail spending will be done online, Dales says.
👉 U.S. official data showed that Initial Jobless Claims rose to 1.416 million for the week ended July 18 (1.300 million expected), while Continuing Claims unexpectedly fell to 16.197 million for the week ended July 11 (17.100 million expected).
👉 Asian currencies strengthen against USD on possible position adjustment ahead of the weekend. “Asia FX and equities will likely do their best to hold their ground as we head into the end of the trading week,” UOB says. After the initial knee-jerk selling mid-week following the latest escalation in U.S.-China tensions, Asia FX and equities managed to limit their losses in yesterday’s trading session, UOB adds.
👉 AUD/USD has fallen back below 0.7100 because of a stronger USD. CBA says the near-term risks to AUD are skewed to the downside because of the rising tensions between China and the U.S. The bank sees a risk that heightened tensions between the two countries push AUD/USD back inside its recent 0.68-0.70 range.
👉 Spot gold price advanced a further $16.00 (+0.9%) to $1,887 an ounce extending its winning streak to a fifth session. On the other hand, spot silver retreated 1.8% to $22.59 an ounce halting a four-day rally. U.S. WTI crude oil futures (August) lost 2.0% to settle at $41.07 a barrel.
As we have observed earlier in the Currency Monitoring Chart, we discovered that AUD/JPY lines are separated with the farthest distance.
The following is AUD/NZD looking at 4 hour chart:
INTRADAY MARKET INSIGHTS
USD/JPY Intraday:
Downside prevails. The pair has shot below the lower Bollinger band calling for acceleration to the downside. And strong downward momentum is evidenced by the relative strength index, which is subdued below 30. The trailing key resistance has been lowered to 106.85. Unless this level is surpassed, the pair should sink toward 106.35 and 106.15 on the downside.
EUR/USD Intraday:
Key resistance at 1.1620. The pair is off a low of 1.1587 seen overnight, but remains capped by the key resistance at 1.1620 (around the intraday high of yesterday and the upper Bollinger band). As long as this level is not surpassed, the pair is expected to return to 1.1580 and 1.1560 on the downside.
AUD/USD Intraday:
Towards 0.7085. The technical outlook of the pair is negative as the prices are capped by a declining trend line. The declining 20-period moving average should pressure the prices lower. To conclude, as long as 0.7125 acts as the resistance level, expect a drop with targets at 0.7085 and 0.7060 in extension. Alternatively, a break above 0.7125 would bring a rebound with 0.7140 and 0.7160 as targets.
NZD/USD intraday:
Downside prevails. The pair is under pressure below both declining 20-period and 50-period moving averages. The relative strength index is locating at the selling zone between 30 and 50, confirming a bearish outlook. To conclude, as long as 0.6655 holds on the upside, look for a drop to 0.6598 before targeting to 0.6583 in extension. Alternatively, a break above 0.6655 would turn the outlook to positive and call for an advance to 0.6681 as a target.
GBP/USD Intraday:
Turning down. The pair retreats from 1.2760 and tests the 50-period moving average. The relative strength index is around its neutrality level at 50, suggesting the lack of upward momentum. To conclude, unless the resistance level at 1.2760 is violated, the pair should return to 1.2715 and 1.2690 in extension. On the other hand, only a break above 1.2760 would turn the outlook to positive and call for a rise with 1.2775 and 1.2790 as targets.
USD/CHF Intraday:
Downside prevails. The pair edged lower along the lower Bollinger band. The relative strength index is locating at the selling zone between 30 and 50, indicating a bearish outlook. To conclude, as long as 0.9270 is not surpassed, we anticipated a further decline with targets at 0.9235 and 0.9220 in extension. In an alternative scenario, above 0.9270, expect a technical rebound with 0.9285 and 0.9300 as targets.
USD/CAD Intraday:
Rebound. The pair maintains a bullish bias above the key support at 1.3370. In fact, it has rebounded to levels above both the 20-period and 50-period moving averages, while the relative strength index shows a bullish divergence. Unless the key support at 1.3370 is violated, the pair should proceed to 1.3425 and 1.3455 on the upside. Alternatively, below 1.3370, expect a return to 1.3345 on the downside.
EUR/JPY Intraday:
Target 123.18. The pair remains on the downside as it has failed to break above its previous high. In fact, it has broken below both the 20-period and 50-period moving averages, while the relative strength index has dropped to the 40s, signaling a bearish bias. Below the key resistance at 124.23, expect a decline to 123.39 and 123.18. Alternatively, a break above 124.23 would open a path to 124.59 on the upside.
EUR/GBP Intraday:
Towards 0.9052. The pair is capped by a bearish trend line drawn from July 22. Currently, it is hovering around both the 20-period and 50-period moving averages, while the relative strength index shows a lack of upward momentum. As long as the key resistance at 0.9127 holds, the pair should drop to 0.9067 and 0.9052. Alternatively, a break above 0.9127 would trigger an advance to 0.9153.
