(11 AUGUST 2020)DAILY MARKET BRIEF 2:Gold tests $2K on improved sentiment.

In the currency markets, the US dollar is a touch stronger against the leading reserve currencies including euro, yen and Swiss franc.

The EURUSD extended losses to 1.1722 on the back of a broad-based recovery in the greenback. The single currency rallied more than 10% since its March dip against the US dollar, and the overstretched long euro positions combined with a heavily short USD market point at a deeper downside correction in EURUSD. We expect a setback to 1.1635, the minor 23.6% retracement on March – August rebound in the continuation of the actual bearish move.

Sterling remained firmed against a stronger US dollar on the back of encouraging economic data. The British jobless rate remained unchanged at 3.9% in June versus 4.2% expected by analysts and the claimant count surprisingly fell 28.1K in July versus +10K penciled in by analysts. The British retail sales rose 4.3% y-o-y in July according to data released by BRC on Tuesday. While the second consecutive month surge in British retail sales gave hope to investors, the data provider warned that the strong headline figures hid contrasting underlying performances as many shops remain on the brink of survival. The medium-term outlook in sterling remains weak, however, and a further recovery in the US dollar could easily throw the pair below the $1.30 mark.

Elsewhere, the antipodeans were better bid on improved risk appetite.

The Central Bank of Turkey (CBT) announced to halve the liquidity limits offered to primary dealers as the Turkish lira fell to fresh all-time lows against the US dollar and the euro. Normalisation measures should slow down but will unlikely reverse the sell-off in the lira with inflation hovering around 12% versus the CBT’s policy rate of 8.25%, and the 5-year CDS hanging near the highest on record. Moving forward, investors need time to restore confidence in central bank’s ability to stabilize the lira following the back-to-back interest rate cuts before the pandemic that raised many eyebrows regarding the bank’s independency and the ultra-lose policy response to the pandemic. The bank will likely be forced to increase rates at the August 20 meeting.