The Friday Forex Takeaway – Episode 33

<h2>Key Points From This Week</h2>
<p><strong>US/China Tensions Increase</strong></p>
<p>Relations between the US and China have deteriorated once again this week in the wake of accusations made by the US against China with both Trump and secretary of state Mike Pompeo claiming to have seen evidence that COVID-19 was created in a Chinese lab. Markets had been worried about the possible implications for the ongoing trade negotiations. However, following a telephone call between top US and Chinese officials on Thursday, trade talks are said to still be on track.</p>
<p><strong>RBA Keeps Rates on Hold – Issues Warning</strong></p>
<p>The RBA kept rates on hold this week at record lows of .25%. With market conditions having stabilised in recent weeks, no further change was expected. However, the bank reiterated its willingness to do more if necessary and, in the quarterly Statement on Monetary Policy released early Friday morning, the RBA warned of a severe economic hit over the rest of the year. The RBA now forecasts unemployment to top 9% by year end.</p>
<p><strong>BOE Keep Rates on Hold</strong></p>
<p>The BOE held rates steady in May, too. As with the RBA, though, the bank’s outlook was particularly bleak. The BOE expected the economy to contract by 25% through June and 14% over 2020 as a whole with BOE governor Bailey warning of an “unprecedented” depression. With this in mind, expectations of further easing from the BOE remain elevated and 2 of the bank’s 9 voting members were in favour of further QE at this point.</p>
<h2>Key Events Next Week</h2>
<p><strong>US CPI</strong></p>
<p>US inflation data next week will be closely watched. Given the massive decline in energy prices and the steep drop off in consumer activity there is a high likelihood that we see a further drop down from the prior month’s -0.4% reading which would again put further pressure on the Dollar and the Fed.</p>
<p><strong>UK Prelim GDP</strong></p>
<p>Preliminary Q2 GDP next week will be a big watch for the market. The prospect of a further negative print in Q2 raises the risks of a technical recession being confirmed in the UK. The BOE has warned that such a scenario is expected and traders will now be watching to see just how bad the hit over Q2 is expected to be at this stage.</p>
<p><strong>US Retail Sales</strong></p>
<p>Retail sales data later in the week, which is a key component of the GDP reading, will also be another big watch for traders. With the US only just starting to ease lock-downs now, this reading is still expected to confirm severe weakness, making a bleak indication for the Q2 GDP data ahead and likely to pressure the Dollar.</p>
<h2>Keep An Eye On</h2>
<p><strong>Lock-down Announcements</strong></p>
<p>With a special announcement due in the UK on Sunday night regarding potential changes to lock-down measures and more countries in Europe beginning to ease measures, it is likely that we will see further easing of measures globally next week. While this starts to shift focus back towards the recovery effort, it also raises risks and incoming health data will be closely watched. If the global infection rate starts to rise again this could be very damaging for risk assets.</p>
<p><b><i>Disclaimer: The material provided is for information purposes only and shoul</i></b><b><i>d not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.</i></b></p>
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