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FXStreet reports that economist at UOB Group Ho Woei Chen, CFA, reviewed the latest interest rate decision by the PBoC.

“The People’s Bank of China (PBoC) kept its Loan Prime Rate (LPR) unchanged in August with the 1Y LPR and the 5Y & above LPR set at 3.85% and 4.65% respectively. Today’s move marks the fourth consecutive month that the PBoC has stayed on hold, setting a new record for the longest stretch that it has kept rates steady since the LPR reform in August 2019.”

“The decision is in line with market’s expectation as the PBoC had kept the 1Y medium-term lending facility (MLF) rate which the LPR is anchored to, unchanged at 2.95% on Monday. Furthermore, the uptrend in domestic interbank rates since June due to tightened liquidity and better economic outlook, has also reduced the prospect of banks cutting their lending rates.”

“Despite holding off further rate cuts, the central bank signaled that it will continue to maintain ample market liquidity.”

“China's Cabinet on Monday had also repeated its long-held policy stance to guide lending rates lower while avoiding “flood-like” stimulus. As such, we still see prospect for a slight downward trajectory in the benchmark 1Y LPR to 3.75% by end-2020 even as the odds of rate cuts are diminishing as the economy stabilises.”

According to ActionForex, analysts at RBC Financial Group notes that Canada's retail sales jumped 23.7% in June, back above February (and year-ago) levels, but pace of growth slowed sharply in July. 

"The 23.7% surge in retail sales in June was widely expected after Statistics Canada reported a preliminary 24.5% estimate a month ago. Still, the bounce-back in retail sales has been much quicker than feared in the spring. Sales were back 1.3% above February levels in June, and 3.8% above year-ago levels after falling by almost a third over March and April."

"Stores continued to re-open as virus containment measures eased. About 9% of retailers were reportedly closed during June (for an average of one business day.) That was down sharply from 23% closed in May and about a third in April. Sales at clothing stores more-than doubled for a second straight month, but were still more than 20% below February levels. Auto sales were also still down from February (despite a 53% jump in June), but most other sectors were back above pre-shock levels – in some cases (general merchandise stores, and sporting goods, for example) by a substantial margin."

"The re-opening of brick-and-mortar stores also meant a smaller share of sales were made online, although e-commerce sales were still up a whopping 71% from a year ago, and the share of e-commerce sales in total retail sales was still above pre-pandemic levels."

"Sales growth appears to have slowed dramatically in July. The preliminary estimate for that month was up just 0.7%. That is less concerning given the bounce-back into June, but does suggest that pent-up demand won’t provide the same near-term boost to the retail sector as it has in housing markets (where home resales have surged to well-above year-ago levels in the summer to help make up for delayed transactions in the spring.) Still, our own tracking of card transactions is tracking stronger than that preliminary estimate, and the 4-week extension of the CERB program, and modifications to the EI program announced yesterday will continue to help cushion the household income hit from what are still very weak labour markets."

The European Commission (EC) said on Thursday its flash estimate showed the consumer confidence indicator for the Eurozone rose by 0.3 points to -14.7 in August from an unrevised -15.0 in the previous month. Economists had expected the index to remain at -15.0.

Considering the European Union (EU) as a whole, consumer sentiment improved by 0.1 points to -15.5.

Despite this month’s gains, both indicators remained well below their long-term averages of -11.1 (Eurozone) and -10.5 (EU).

The National Association of Realtors (NAR) announced on Friday that the U.S. existing home sales soared 24.7 percent m-o-m to a seasonally adjusted rate of 5.86 million in July from a revised 4.70 million in June (originally 4.72 million). That was the highest monthly increase on record.

Economists had forecast home resales increasing to a 5.38 million-unit pace last month.

In y-o-y terms, however, existing-home sales rose 8.7 percent in July.

According to the report, each of the four major regions attained double-digit m-o-m advances, while the Northeast was the only region to show a y-o-y drop. Single-family home sales stood at 5.28 million in July, up 23.9 percent from 4.26 million in June, and up 9.8 percent from one year ago. The median existing single-family home price was $307,800 in July, up 8.5 percent from July 2019. Meanwhile, existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 580,000 units in July, up 31.8 percent from June and equal to a year ago. The median existing condo price was $270,100 in July, a gain of 6.4 percent from a year ago.

“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days,” noted Lawrence Yun, NAR’s chief economist. “With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.” 

Preliminary data released by IHS Markit on Friday pointed to a strong upturn in the U.S. private sector business activity in August.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) came in at 53.6 in August, up from 50.9 in July, signaling a solid improvement in operating conditions midway through the third quarter. That was the highest reading since January 2019. Economists had expected the reading to increase to 51.9. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. According to the report, growth was driven by quicker expansions in output and new orders.

Meanwhile, the Markit flash services purchasing manager's index (PMI) rose to 54.8 in August from 50.0 in the prior month, signaling the first expansion in service sector business activity since the start of 2020. That was the highest reading since March 2019 as well. Economists had expected the reading to rise to 51.0. According to the report, new business grew firmly due to greater client demand and increased marketing activity, while sales rose solidly, supported by a sharp upturn in new export, and employment growth was the steepest since February 2019.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 54.7 in August, up from 50.3in July, signaling a strong increase in output. Moreover, it marked the sharpest upturn in the U.S. private sector business activity since February 2019.

Commenting on the flash PMI data, Siân Jones, Economist at IHS Markit, noted: “August data pointed to a further improvement in business conditions across the private sector as client demand picked up among both manufacturers and service providers. Notably, the renewed increase in sales among service sector firms was welcome news following five months of declines.”

FXStreet reports that strategists at Capital Economics think the US dollar will weaken a bit further this year but suggestions that its role as the world’s primary reserve currency is in jeopardy are wide of the mark.

“Concerns that the coronavirus pandemic has put the dollar at risk of losing its status as the world’s main reserve currency tend to focus on the rapid increase of US government debt, the expansion of the Fed’s balance sheet, and the risk of runaway inflation. Dollar bears can also point to the fall in the dollar’s share of global FX reserves over the past couple of years, which has come despite a generally strong dollar. But, while it is too early to say what the long-run effects of the coronavirus pandemic will be, we don’t think that concerns about the dollar’s reserve status have played a significant part in its recent decline.”

“The dollar’s fall since March can be readily explained by factors other than concerns about its reserve status. These include the continued, if fitful, recovery of risky assets, the fall in US interest rates relative to those elsewhere, and the fact that European policymakers have taken major steps towards shoring up their currency union. The shift in sentiment towards the euro is remarkable: net speculative positioning in favour of the common currency is now the highest level on record. The euro’s recent surge probably reflects relief that an existential threat (in this case disagreement about how to tackle the fallout from the pandemic) has been averted, more than a judgement about the dollar.”

“If anything, the coronavirus crisis has reinforced the dollar’s role as the world’s key currency. In March, the dollar surged as safe-haven demand jumped and short-term dollar funding dried up. As a result, the Fed ended up backstopping not only its own financial institutions but also, through its swap lines with other major central banks, those of the rest of the world. It is hard to imagine the ECB or the PBoC taking on a similar role in a crisis.”

“Even if the current dollar-dominated reserve currency equilibrium is in some sense sub-optimal, that doesn’t mean a shift will happen any time soon. Sterling remained the world’s main reserve currency well after the British economy had been surpassed in size by the economies of both the US and Germany. And, perhaps more importantly, there is no obvious alternative to the dollar. The next two largest economies, the euro-zone and China, are both smaller than the US, and the euro (due to its still-fragile political underpinnings) and the renminbi (due to China’s capital controls and unique political system) have significant shortcomings as reserve currencies.”

U.S. stock-index futures fell slightly on Friday, as increased worries over a global economic recovery offset positive news on COVID-19 vaccine from Pfizer (PFE) and BioNTech (BNTX).

Global Stocks:

• U.S. keeping close eye on it
• China has done some of purchasing work they had to do
• Predicts Tik-Tok stops sharing info with China Communist Party
• We will continue to go after Chinese companies to make sure security levels are safe for U.S.
• U.S. is focused on technologies, protecting data and networks in China

FXStreet reports that economists at Credit Suisse note that the S&P 500 has held key support from its 13-day average at 3355/54 as well as its uptrend from June, but with a move above 3400 still needed to negate the recent small bearish “reversal day”.

“The S&P 500 setback has held key 13-day average support, now at 3354, as well as its uptrend from late June (today at 3361) and despite the recent small bearish ‘reversal day’ and bearish RSI momentum divergence the immediate risk still leans slightly higher, even if the risk for a correction lower is seen growing steadily.” 

“Above 3392 is needed to ease the immediate downside bias for a move back to 3400. Beyond here can negate the bearish ‘reversal day’ for strength to trend resistance at 3412 initially, then more importantly at our ‘ideal’ objective at 3432/36. It is from here we continue to look for a correction lower to finally emerge.” 

“Support moves to 3381 initially, then 3361, with a close below 3355/54 still needed to suggest a correction lower is finally underway with support then seen next at 3326, then gap support from early August at 3317/07.”

(company / ticker / price / change ($/%) / volume)

Statistics Canada reported on Friday the New Housing Price Index (NHPI) rose 0.4 percent m-o-m in July, following a 0.1 percent m-o-m uptick in the previous month.

According to the report, new home prices advanced in 17 out of the 27 census metropolitan areas (CMAs) surveyed in July, with Hamilton (+1.5 percent m-o-m) recording the largest increase due to improving market conditions. On the contrary, new house prices dropped the most in Regina (-0.5 percent m-o-m) and Calgary (-0.5 percent m-o-m) as buyers negotiated lower selling prices and builders offered promotions.

In y-o-y terms, NHPI rose 1.7 percent in July, following a 1.3 percent gain in the previous month.

Statistics Canada reported on Friday that the Canadian retail sales surged 23.7percent m-o-m to CAD52.96 billion in June, following an unrevised 18.7 percent m-o-m jump in May. That was the biggest monthly advance on record.

Economists had forecast a 24.5 percent m-o-m climb for June.

According to the report, sales increased in all 11 subsectors, with growth primarily led by motor vehicle and parts dealers (+53.4 percent m-o-m), as well as clothing and clothing accessories stores (+142.3 percent m-o-m).

Excluding motor vehicle and parts dealers, retail sales rose 15.7 percent m-o-m in June compared to an unrevised 10.6 percent m-o-m advance in May and economists’ forecast for a 15.0 percent m-o-m gain. Excluding motor vehicle and parts dealers and gasoline stations, retail sales increased 15.7 percent m-o-m in June.

In y-o-y terms, Canadian retail sales rose 3.8 percent in June, following an unrevised 18.4 percent tumble in May.

Over the second quarter, retail sales were down 13.3 percent q-o-q.

GBP weakened against other major currencies in the European session on Friday as the statements of the top negotiators for the EU and the UK on the latest round of their talks on a post-Brexit trade deal overshadowed better-than-expected data on the UK's retail sales and PMIs.

The latest round of the EU-UK trade negotiations ended with “little progress”. Addressing the press on the latest round of Brexit negotiations, the EU's negotiator Michel Barnier said that the talks "did not move swiftly forward" this week, adding that he is "disappointed" with this progress. Barnier also accused the UK of showing "no willingness" to take on board bloc's priority areas in order to agree a trade deal before the end of the year. "Too often this week it felt as if we were going backwards more than forwards," the EU's negotiator noted. He also added that a post-Brexit trade deal between the UK and the EU "seems unlikely" at this stage. 

Meanwhile, the UK's Brexit negotiator David Frost noted that the latest round of trade talks with the EU had been "useful", but there had been "little progress" amid differences on fisheries policy and state aid rules. He also added that "agreement is still possible, and it is still our goal, but it is clear that it will not be easy to achieve.”

The Office for National Statistics (ONS) reported that the UK retail sales rose 3.6 percent m/m in July, following a 13.9 percent m/m surge in June. Economists had forecast sales to advance 2 percent m/m. On a yearly basis, the UK's retail sales climbed 1.4 percent in July, in contrast to a 1.6 percent decline in June. This was better than economists' forecast of zero change.

In addition, the report from the IHS Markit revealed that the UK's private sector expanded at the fastest pace since October 2013 in August as both the manufacturing and service sectors continued to experience a recovery in customer demand. The headline seasonally adjusted IHS Markit/CIPS Flash UK Composite Output Index came in at 60.3 in August, up from 57.0 in July, easily beating market expectations of 57.1. According to the report, service sector activity (index at 60.1) expanded the most since August 2014 and manufacturing activity (55.3) grew the fastest since February 2018.

FXStreet reports that analysts at Credit Suisse note that USD/JPY strength has been capped at 106.04, its accelerated moving average, and despite the recent bullish “reversal day” the immediate risk is seen lower with support awaiting at 105.27.

“Although USD/JPY posted a bullish ‘reversal day’ earlier this week after failing to hold a break below 105.27 – the 61.8% retracement of the rally from late July – the recovery has been unable to clear the 13-day average, now at 106.04, and the immediate risk stays seen lower whilst below here.”

“Beneath 105.53 is needed to further increase downside momentum with support then seen next at 105.27, then more importantly at the 105.18/10 lows. Below here can negate the ‘reversal day’ for a resumption of the core downtrend with support then seen next at 104.65/55.”

“A close above 106.04 can see an extension of the recovery with resistance next at 106.44/46, then the 55-day average at 106.62/67, which we look for then ideally cap to define the top of a near-term range.”

Oil Futures holds gains to five-month highs – Charles Schwab

FXStreet reports that Joe Schulte from Charles Schwab notes that energy futures consolidated gains this week with WTI Crude prices resting in their recent range over the $40 mark. Market eyes OPEC+ and supply data.

“Continued weakness in the US dollar has added support with the Greenback hitting levels not seen since mid-2018.”

“A virtual meeting held by the OPEC+ Joint Ministerial Monitoring Committee (JMMC) this week lent support. Comments coming out of the meeting said that compliance to production cuts in July was at 97% conformity and they are committed to achieving 100%. Ministers further stated they see an improving outlook in the global supply and demand situation but remain determined to maintain production cuts to support prices. Current agreed-upon production cuts are set at 7.7 million bpd versus the 9.6 million bpd level in July.”

“Weekly stocks data out this week was mixed but viewed mostly supportive. After the Tuesday afternoon larger-than-expected drop (4.3 mb) in Crude inventories released by the American Petroleum Institute (API), the market absorbed conflicting EIA numbers Wednesday. On the Crude front, supplies showed a smaller-than-expected draw of only 1.63 million. However, the Gasoline numbers came in much better, with a 3.33 million drop more than double market expectations. Distillate numbers were mostly in line with expectations.”

“The trade continues to monitor any pandemic news, rising and falling on each tidbit. The state of negotiations in Washington on a second stimulus package remains in the background with passage offering a potential boost. Likewise, the current deterioration between the US and China on trade issues continues to raise anxieties. Any return to previous trade war conditions would be detrimental to global energy demand.”

Deere (DE) reported Q3 FY 2020 earnings of $2.57 per share (versus $2.71 per share in Q3 FY 2019), beating analysts’ consensus estimate of $1.25 per share.

The company’s quarterly revenues amounted to $7.859 bln (-12.4% y/y), beating analysts’ consensus estimate of $6.703 bln.

DE rose to $194.04 (+1.54%) in pre-market trading.

USD/JPY poised to keep the 105.00-107.00 range - UOB

FXStreet reports that FX Strategists at UOB Group note that USD/JPY is expected to keep navigating between 105.00 and 107.00 in the next weeks.

24-hour view: “Our expectation for the ‘strong surge to extend higher to 106.55’ did not materialize as USD traded between 105.73 and 106.21 before settling at on a soft note at 105.79 (-0.29%). While USD could drift lower from here, momentum indicators are lackluster and any weakness is viewed as part of a 105.40/106.05 range (a sustained decline below 105.40 is not expected).”

Next 1-3 weeks: “We indicated earlier yesterday (19 Aug, spot at 105.30) that ‘downward momentum has improved further’ and ‘the next level to focus on is at 104.50’. While USD subsequently weakened further to a low of 105.09, it turned around and surged to a high of 106.14 during NY hours. While our ‘strong resistance’ level at 106.30 is still intact, the rapid loss in momentum suggests that further USD weakness is unlikely. From here, we view the movement in USD as part of a consolidation phase and USD could trade between the two major levels of 105.00 and 107.00 for a period of time.”

FXStreet reports that economists at Credit Suisse note that EUR/GBP has seen a decisive rejection of resistance at 0.9072 for the completion of a bearish “outside day” to rekindle thoughts of a topping process, with key support seen at the 0.8937 low of July, beneath which would see a top established.

“EUR/GBP has seen a fresh and decisive rejection of resistance at 0.9072 and the subsequent decline has seen a large bearish ‘outside day’ established to rekindle thoughts of a top. Key remains the 0.8937 July low, removal of which is needed to see a top confirmed to warn of a more meaningful turn lower.” 

“Below 0.8937 we would see support next at 0.8909 and then more importantly at 0.8866/64 – the highs of April and lows of June and also the 61.8% retracement of the April/June rally – which we would expect to hold at first. Beneath in due course though can eventually expose the 200-day average at 0.8764.” 

“Resistance is seen at 0.9001/03 initially, with the immediate risk seen stating lower whilst below 0.9033. Above 0.9070/72 is needed to see the ‘outside day’ negated and the risk turn higher.”

The latest survey by the Confederation of British Industry (CBI) revealed on August the UK manufacturers' order books improved slightly in July but remained considerably weak by historical standards.

According to the report, the CBI's monthly factory order book balance increased to -44 in August from -46 in the previous month. This was the highest reading since March but remained well below the long-run average of -14. Economists had forecast the reading to come in at -35. Export order books (-60) strengthened slightly from July (-64) but continue to be far below their long-run average (-18).

The CBI also reported that output in the quarter to August (-46) declined sharply, although the pace moderated on July’s survey-record decline (-59). It is also expected that output will fall at a much slower pace in the next three months (-10). Meanwhile, output prices are seen to decline at a modest pace in the next three months (-5 from +4 in July).

“The survey results show some early signs of the manufacturing downturn bottoming out, but it is clear that many firms remain in distress and the sector looks set for a challenging Autumn,” noted Tom Crotty, Group Director at INEOS and Chair of the CBI Manufacturing Council. “As the government looks to economic recovery, it is crucial that it continues to support firms through the difficult months ahead, and work with us to build a more resilient manufacturing sector.”

FXStreet reports that FX Strategists at UOB Group said USD/CNH keeps the negative view and stays focused on the 6.8850 level.

24-hour view: “We indicated yesterday that the ‘rebound is unlikely to be sustained but USD could extend to 6.9310 before a pullback can be expected’. Our expectation was incorrect as USD drifted lower to an overnight low of 6.9050 before extending its decline upon opening this morning. Downward momentum has picked up, albeit not by much. From here, USD could continue to drift lower and while a dip below the Wednesday’s low of 6.8981 would not be surprising, the next support at 6.8850 is likely out of reach for today. Resistance is at 6.9110 followed by 6.9200.”

Next 1-3 week: “On Wednesday (19 Aug, spot at 6.9120), we indicated that USD ‘has moved into a negative phase’ and that ‘the next level to focus on is at 6.8850’. USD subsequently dropped to 6.8981 before rebounding to a high of 6.9263 yesterday (20 Aug). While downward momentum has been dented, our ‘strong resistance’ level at 6.9400 is still intact and we continue to hold the view that USD is in a negative phase. That said, 6.8850 may not come into the picture so soon but a break of this level could potentially lead to a downward acceleration as the next support level of note does not come in until 6.8460.”

Reuters reports that the latest negotiating round between Britain and the European Union on future ties after a post-Brexit transition period runs out at the end of 2020 brought no breakthroughs this week on the key sticking points, an EU official said on Friday.

“Nothing has moved. (There were) some technical exchanges that weren’t entirely pointless but nothing noteworthy on the topics that matter,” said the official, who is involved in the talks and spoke on condition of anonymity.

Last March, Britain became the first country ever to leave the EU - after 46 years of membership - and the two are now negotiating a new partnership from 2021 on everything from trade and transport to energy and security.

Persistent disagreements over state aid rules and fishing quotas have so far thwarted a deal, which the EU says must be in the making in time for approval at an Oct. 15-16 summit of the bloc’s 27 national leaders to enable ratification this year.

Beyond the biggest stumbling blocks, differences also linger in discussions on migration, security, dispute-settling mechanisms, human rights guarantees and other areas.

Despite time being short, the EU side has been relatively upbeat in recent weeks that an agreement can be reached with the coronavirus pandemic bringing economic havoc and both sides of the English Channel wanting to avoid an even deeper recession.

FXStreet reports that economists at Westpac have boosted the AUD/USD end-2020 forecast from 0.72 to 0.75 while the 2021 scenario of a further solid boost to AUD remains intact with the resulting forecast for the aussie to reach 0.80 by end 2021. 

“Our fair value model continues to signal an undervalued AUD. We currently assess AUD/USD fair value at 0.78 and although our base case is that the iron ore price may fall back from $120 to $110 by year’s end with fair value holding at 0.78 it will still be comfortably above our end 2020 target of 0.75.”

“Other factors which are likely to continue to support AUD are the likely ongoing boosts to risk – firm commitments by central banks to support liquidity and demand; ongoing government stimulus; improving news around developments with vaccines; and Australia’s ongoing current account surplus which we expect to register at $46 billion for 2020 including $10 billion for the December quarter.”

“We forecast that GDP will lift by 2.8% in the December quarter supported by the reopening of the Victorian economy and ongoing “progress” in the other states. For 2021 we expect a significant recovery in global growth. From a contraction in 2020 of around 4%, we expect global growth to lift to 5% in 2021. We see relatively more rapid recoveries in the Asian region boosting their currencies which in turn will provide support for AUD.”

According to the report from IHS Markit / CIPS, UK private sector companies reported a sharp and accelerated increase in business activity during August, with both the manufacturing and service sectors continuing to experience a recovery in customer demand.

The headline seasonally adjusted Flash UK Composite Output Index - which is based on approximately 85% of usual monthly replies – registered 60.3 in August, up from 57.0 in July and signalling the fastest rate of business activity expansion since October 2013. Manufacturing production (index at 61.6) increased at a slightly quicker pace than service sector activity (60.1) during the latest survey period.

Higher levels of private sector output were overwhelmingly attributed to the reopening of the UK economy after the lockdown period in the second quarter of the year and a subsequent increase in both consumer and business spending.

Total volumes of new work expanded for the second month running in August, with the latest increase the fastest since July 2014. New order growth was mostly linked to an accelerated reopening among corporate customers, alongside greater willingness-to-spend among UK households. Survey respondents often commented on the restart of projects delayed during the public health emergency, but continued to note that levels of demand remained well below those seen prior to the pandemic. Concerns about the speed and duration of the recovery resulted in sustained job cuts across the private sector during August. In contrast to the positive trends for output and new orders, latest data indicated the fastest pace of decline in employment numbers since May. 

August data pointed to a setback for business expectations across the private sector economy. The index measuring growth projections for the next 12 months dipped for the first time since March, with some survey respondents citing concerns that the recovery will be slower than first expected.  

According to the report from IHS Markit, August saw a loss of growth momentum across the eurozone private sector, following a rebound from the coronavirus disease 2019 (COVID-19) related downturn. Both business activity and new orders rose modestly, and at slower rates than in July. The softer overall expansion owed exclusively to weakness in the service sector as growth of manufacturing production quickened. Meanwhile, companies across the single currency bloc continued to scale back workforce numbers.

The flash IComposite PMI posted 51.6 in August, down from July’s reading of 54.9 and signalling a slowdown in the pace of output growth. July had seen the first expansion of activity in five months amid a rebound following the COVID-19 outbreak and disruption caused by lockdowns across the euro area. Differing trends were recorded across the two sectors covered during August. Service providers recorded broadly unchanged levels of business activity from those seen in July. On the other hand, manufacturing production rose sharply, with the rate of growth quickening to the fastest since April 2018.

New orders increased for the second successive month, but as was the case with activity the rate of growth slowed midway through the third quarter. Growth of total new business was undermined by a fall in new export orders*, itself driven by a sharp decline in new business from abroad at service providers as travel restrictions were reimposed in some countries following rises in COVID-19 cases. A marked increase in manufacturing new orders for the second month running helped to bring about a stabilisation of backlogs of work in the sector, thereby ending a 23-month sequence of depletion. Overall, outstanding business continued to fall, however, as service providers posted a sharper reduction than in July.

According to the report from IHS Markit, business activity across Germany grew at a solid, albeit slower rate in August. The loss of momentum was confined to the service sector, where the survey showed a steeper decline in new business from abroad. Manufacturing meanwhile saw a further acceleration in growth of both output and new orders, though this failed to prevent another marked round of factory job losses.

The headline Flash Germany Composite Output Index came in at 53.7 in August, registering above the 50.0 no-change mark for the second month in a row but slipping from July’s near two-year high of 55.3. The drop in the index reflected a slower rise in service sector business activity, which was up only marginally after strong growth in July. By contrast, manufacturing production rose sharply and at the quickest rate for two-and-a-half years. Across the goods-producing sector, firms reported a boost to output from rising inflows of new work, which increased sharply for the second month in a row and showed the largest gain since December 2017. Supporting the upturn in manufacturing order book volumes was a further marked rise in export sales. Several panellists commented on higher demand from China and Turkey.

Service providers also recorded a rise in new business for the second month in a row in August. However, the rate of growth was only modest and slowed since July, resulting in a more moderate increase in overall volumes of new work across the private sector. Services firms reported a sustained drag from a reduction in new business received from international clients, which fell sharply and to a greater extent than in July. Another factor weighing on demand across the service sector was a sustained decline in employment. The rate of job shedding eased for the third month in a row and was the weakest since the current decline began in March, though it still pointed to a notable drop in workforce numbers overall. At the sector level, manufacturers recorded another marked (albeit slower) reduction in employment that was among the steepest seen over the past 11 years, while services firms noted a fractional rise in staffing levels.

Business confidence towards activity over the coming year increased slightly in August, reaching the highest overall level for two years. However, this improvement masked contrasting trends across the two monitored sectors, with stronger optimism among manufacturers (expectations here were at a two-and-a-half year high) being partly offset by a slight loss of confidence among service providers.

During today's Asian trading, the US dollar fell against the euro and the yen.

Japan's consumer price growth accelerated to 0.3% year-on-year in July, compared with 0.1% in the previous month, the Ministry of internal Affairs and communications said. This is the highest rate of recovery since March, mainly due to rising food prices.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell by 0.13% compared to the previous day.

Data from the US labor Department yesterday showed an unexpected increase in the number of new applications for unemployment benefits in the week ending August 15, to 1.106 million.

Meanwhile, the pound rose 0.2% against the dollar. The volume of retail sales in the UK in July 2020 increased by 3.6% compared to the previous month, according to data from the National statistics office. In annual terms, sales increased by 1.4%. Analysts on average predicted growth of the first indicator by 2% and maintaining the second at last year's level.

The Chinese yuan also rose against the dollar. The People's Bank of China (PBOC) on Friday poured 200 billion yuan into the banking system through reverse REPO operations. The PBOC offered the market 150 billion yuan in 7-day operations and 50 billion yuan in 14-day operations. The rates for these operations are 2.2% and 2.35%, respectively.

RTTNews reports that the UK budget deficit widened sharply in July from the last year and debt exceeded GBP 2 trillion for the first time on record, the Office for National Statistics reported Friday.

Public sector net borrowing excluding public sector banks rose by GBP 28.3 billion from last year to GBP 26.7 billion in July. This was the fourth highest borrowing in any month on record.

The ONS said borrowing estimates were subject to greater than usual uncertainty. Borrowing in June was revised down by GBP 6.0 billion to GBP 29.5 billion.

During April to July, borrowing totaled GBP 150.5 billion, which was GBP 128.4 billion more than in the same period last year and the highest borrowing in any April to July period on record.

The estimate indicated that the GBP 150.5 billion borrowing was almost three times the GBP 56.6 billion borrowed in the whole financial year ended March 2020.

Further, data showed that at the end of July, public sector net debt excluding public sector banks exceeded GBP 2 trillion for the first time. Debt at the end of July 2020 was 100.5 percent of gross domestic product.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1957 (2734)

$1.1929 (2330)

$1.1907 (2354)

Price at time of writing this review: $1.1872

Support levels (open interest**, contracts):

$1.1801 (344)

$1.1779 (1292)

$1.1751 (807)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date September, 4 is 92676 contracts (according to data from August, 20) with the maximum number of contracts with strike price $1,0500 (5007);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3353 (1432)

$1.3322 (1502)

$1.3296 (1107)

Price at time of writing this review: $1.3238

Support levels (open interest**, contracts):

$1.3057 (547)

$1.3020 (530)

$1.2980 (1656)

Comments:

- Overall open interest on the CALL options with the expiration date September, 4 is 22594 contracts, with the maximum number of contracts with strike price $1,3800 (3394);

- Overall open interest on the PUT options with the expiration date September, 4 is 18529  contracts, with the maximum number of contracts with strike price $1,3000 (1656);

- The ratio of PUT/CALL was 0.82 versus 0.80 from the previous trading day according to data from August, 20

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.

FXStreet reports that in opinion of FX Strategists at UOB Group, EUR/USD is expected to keep the trade likely between 1.1740 and 1.1950 in the next weeks.

24-hour view: “Yesterday, we highlighted that there ‘is room for EUR to weaken further to 1.1805’. We added, ‘for today, the next support at 1.1780 is unlikely to come into the picture’. Our view was not wrong as EUR dipped to 1.1800 before recovering quickly. Despite the rapid bounce from the low, upward momentum has improved just a tad. From here, the rebound could extend to 1.1900 but a sustained rise above this level is unlikely (next resistance is at 1.1925). Support is at 1.1840 followed by 1.1820. The 1.1800 low is likely ‘safe’ for today.”

Next 1-3 weeks: “There is not much to add to the update from yesterday (20 Aug, spot at 1.1845). As highlighted, we view the current price action as the early stages of a consolidation phase. For these couple of weeks, EUR is likely to trade between 1.1740 and 1.1950. In view of the still overbought conditions, the downside risk appears to be greater but EUR has to close below 1.1740 in order to indicate the start of a more sustained and deeper pull-back in EUR.”

According to the report from Office for National Statistics, in July 2020, retail sales volumes increased by 3.6% when compared with June, and are 3.0% above pre-pandemic levels in February 2020. Economists had expected a 2.0% increase compared with June.

In July, the volume of food store sales and non-store retailing remained at high sales levels, despite monthly contractions in these sectors at negative 3.1% and 2.1% respectively.

In July, fuel sales continued to recover from low sales levels but were still 11.7% lower than February; recent analysis shows that car road traffic in July was around 17 percentage points lower compared with the first week in February, according to data from the Department for Transport.

Clothing store sales were the worst hit during the pandemic and volume sales in July remained 25.7% lower than February, even with a July 2020 monthly increase of 11.9% in this sector.

Online retail sales fell by 7.0% in July when compared with June, but the strong growth experienced over the pandemic has meant that sales are still 50.4% higher than February’s pre-pandemic levels.