US Dollar Index looks bid above 107.00 ahead of PMIs

 

• The index posts decent gains beyond the 107.00 mark.
• US yields extend the decline across the curve on Friday.
• Flash Manufacturing/Services PMIs next on tap in the docket.

The greenback, in terms of the US Dollar Index (DXY), leaves behind Thursday’s pullback and regains the area beyond 107.00 the figure at the end of the week.

US Dollar Index now looks to data, FOMC

The index extends the erratic performance so far this week and advances north of the 107.00 yardstick, as market participants seen to have already digested the start of the hiking cycle by the ECB on Thursday.

Contrasting with the upbeat tone in the buck, yields in the US cash markets continue their march south and already navigate in multi-session lows across the curve ahead of the key FOMC event due on July 27.

In the NA session, the advanced Manufacturing and Services PMIs for the month of July will be the only releases of note later in the NA session.

What to look for around USD

The index looks side-lined in the 107.00 neighbourhood amidst a broad-based range bound theme so far this week.

In the meantime, the dollar remains underpinned by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: Flash PMIs (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is up 0.49% at 107.12 and faces next contention at 106.38 (weekly low July 20) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).

EUR/USD: A lengthier consolidation phase looks increasingly likely – Credit Suisse

EUR/USD is seen at risk of a lengthier consolidation phase. Notwithstanding,  economists at Credit Suisse stay negative for an eventual sustained break below the 2017 and YTD lows at 1.0350/41.

EUR/USD to suffer an eventual break below 1.0350/41 for a fall to parity

“We see increasing risk for a lengthier consolidation phase. A close above the 13-day exponential average at 1.0555 can add weight to this view for a recovery back to what we continue to see as more important resistance, starting at 1.0627 and stretching up to the 55-day average at 1.0652, which we continue to look to cap on a closing basis.”

“Only above 1.0774/88 would mark a ‘double bottom’ base and a more significant move higher.”

“Support is seen at 1.0470 initially, then 1.0445, below which should clear the way for a retest of 1.0358/41. An eventual break below here should act as the catalyst for a resumption of the core downtrend with support seen next at 1.0217/09 and eventually parity/0.99.”

WANT TO DIRECT TALK OUR MARKET EXPERT CONTACT MONEY LIFE RESEARCH

EUR/USD hovers around 1.0700 amid subdued DXY, US GDP eyed

 EUR/USD is hovering around 1.0700 and is expected to establish above the same amid a broadly subdued US dollar index (DXY). EUR bulls are swiftly scaling higher after the less hawkish Fed minutes downed the US dollar. Focus on US GDP and PCE inflation. 

EUR/USD pares intraday gains around 1.0700 while stepping back from an immediate resistance line. In doing so, the major currency pair reverses the previous day’s pullback from the monthly high during Thursday’s Asian session.

Although a downward sloping trend line from Tuesday restricts the nearby EUR/USD upside around 1.0710, the quote’s ability to stay firmer past the 100-HMA and the 200-HMA keeps the buyers hopeful of overcoming the nearby hurdle.

Also favoring the upside bias is a one-week-old ascending trend line and the bullish MACD signals, not to forget firmer RSI (14).

Bolstered rate hike expectations by the European Central Bank (ECB) have underpinned the euro against the greenback. Inflation is affecting the real income of the households in the eurozone and the ECB has yet not paddled up its interest rates unlike the other Western leaders, which are featuring 50 basis points (bps) rate hikes. The eurozone inflation has reached 7.5% and the ECB needs to tighten its sleeves and announce quantitative restrictions.

Meanwhile, Dutch Central Bank head and ECB Governing Council member Klass Knot stated on Wednesday that inflation expectations will remain well-anchored at its upper limit and a rate hike by 50 bps is not off the table.

On the dollar front, the DXY is underperforming broadly despite the release of the extremely hawkish Federal Open Market Committee (FOMC) minutes. As per the minutes, all Fed policymakers were in favor of a jumbo rate hike announcement. Also, they believe that the benchmark rates should be sent close to the neutral rates quickly. Inflation will remain anchored at elevated levels and the labor market is extremely tight.

Going forward, investors will respond to the US Gross Domestic Product (GDP) and Personal Consumption Expenditure (PCE) numbers. The US GDP is seen unchanged at -1.4% on annual basis. Also, the US PCE is expected to remain stable at 7%.

AUD/USD keeps the red near 0.6900 mark, downside seems cushioned amid softer USD

Disappointing Chinese macro data prompted fresh selling around AUD/USD on Monday.

A softer risk tone was seen as another factor that undermined the perceived riskier aussie.

Sliding US bond yields kept the USD bulls on the defensive and helped limit deeper losses.

The AUD/USD pair remained on the defensive through the first half of the European session and was last seen trading with modest intraday losses, around the 0.6900 round-figure mark.

Following an early uptick to the 0.6960 area, the AUD/USD pair met with a fresh supply and touched an intraday low around the 0.6890 region in reaction to shockingly weaker Chinese macro releases. The data underscored the damage caused by COVID-19 lockdowns in the world's second-largest economy and weighed on the China-proxy Australian dollar.

Apart from China's zero-COVID-19 policy, the war in Ukraine has been fueling concerns about softening economic growth amid the prospects for a more aggressive policy tightening by the Fed. This, in turn, tempered investors' appetite for perceived riskier assets, which was evident from a softer tone around the equity markets and further undermined aussie.

The anti-risk flow dragged the yield on the benchmark 10-year US government bond further away from the recent peak of 3.20%. This, in turn, kept the US dollar bulls on the defensive and extended some support to the AUD/USD pair. Nevertheless, the fundamental backdrop supports prospects for an extension of the bearish trend witnessed over the past one month or so.

Market participants now look forward to the release of the US Empire State Manufacturing Index for a fresh impetus later during the early North American session. The data, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment for short-term opportunities around the AUD/USD pair.

The focus would then shift to the release of the Reserve Bank of Australia monetary policy meeting minutes on Tuesday. This will be followed by the US Retail Sales and Industrial Production figures. Apart from this, remarks by several FOMC officials, including the Fed Chair Jerome Powell, will be looked upon for clues about the possibility of a 75 bps rate hike move, which will drive the USD demand and determine the near-term trajectory for the AUD/USD pair.

WANT TO DIRECT TALK OUR MARKET EXPERT CONTACT MONEY LIFE RESEARCH

USD/CAD holds comfortably above 1.2600 mark amid broad-based USD strength

• USD/CAD gained some positive traction on Monday, though lacked follow-through buying.
• Retreating crude oil prices undermined the loonie and extended support amid a stronger USD.
• The Fed’s hawkish outlook, elevated US bond yields, the risk-off mood all benefitted the buck.

The USD/CAD pair maintained its bid tone heading into the North American session and was last seen trading just a few pips below the daily high, around the 1.2630-1.2625 region.

A combination of factors assisted the USD/CAD pair to build on last week's goodish rebound from the 1.2520 area and gain traction for the third successive day on Monday. A modest pullback in crude oil prices weighed on the commodity-linked loonie and extended support to spot prices amid sustained US dollar buying interest.

Crude oil pulled back from the three-week high after data out of China pointed to economic weakness and fueled worries over slowing demand amid COVID-19 curbs. That said, concerns over tight global supply and a potential European Union (EU) embargo on Russian gas, helped limit the downside for the black liquid, at least for now.

On the other hand, the USD stood tall near the two-year high and continued drawing support from expectations for a more aggressive policy tightening by the Fed. Investors seem convinced that the Fed would hike rates at a faster pace to curb soaring inflation. This, along with elevated US Treasury bond yields, underpinned the buck.

Against the backdrop of the Fed's hawkish outlook, concerns that the worsening Ukraine crisis would put upward pressure on already high inflation pushed the US bond yields to a fresh multi-year peak. Apart from this, the risk-off mood - as depicted by a weaker tone around the equity markets - further benefitted the safe-haven greenback.

That said, relatively thin liquidity conditions on the back of a holiday in Europe held back bulls from placing aggressive bets. The USD/CAD pair, so far, has been struggling to find acceptance above the very important 200-day SMA, which, in turn, warrants some caution before positioning for any further near-term appreciating move.

There isn't any major market-moving economic data due for release on Monday, either from the US or Canada. Hence, the US bond yields, along with the broader market risk sentiment, will play a key role in influencing the USD demand. Traders will further take cues from oil price dynamics to grab some short-term opportunities.

Want more news and analysis with us
VISIT NOW: MONEY LIFE RESEARCH

 Dollar Edges Lower Ahead of Fed Minutes; Aussie Dollar Soars

The U.S. dollar traded in a tight range Tuesday, while the euro edged lower on talk of additional sanctions on Russia and the Australian dollar received a boost from a hawkish central bank.

At 3:00 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower at 98.955, just below the one-week high of 99.083 reached overnight. 

The dollar has been drifting this week so far as investors await the arrival of the minutes from last month’s Federal Reserve policy meeting, due on Wednesday. 

Expectations are building that the central bank will move more aggressively at its meeting in May, especially after a jobs report that showed nonfarm payrolls increasing by 431,000 jobs last month while the unemployment rate fell to a new two-year low of 3.6%.

Ahead of the Fed minutes, Tuesday sees the release of ISM’s non-manufacturing PMI data for March, at 10:00 AM EST (1400 GMT), which is expected to show increased momentum in March, while speeches from Fed policymakers Neel Kashkari, Lael Brainard and John Williams will also be closely studied.

Elsewhere, AUD/USD rose 0.9% to 0.7607, jumping to a nine-month high, after the Reserve Bank of Australia left its benchmark interest rate unchanged at 0.1% at its latest policy setting meeting, but indicated that rate hikes were coming.

Australia’s central bank dropped its pledge to be "patient" on tightening policy in its statement following the decision, a phrase that has featured in every post-meeting release since November 2021, suggesting that it is going to hike sometime soon.

EUR/USD was largely unchanged at 1.0972, hovering above a one-week low, on talk of fresh sanctions on Moscow following alleged atrocities on civilians by Russian forces in the Ukrainian town of Bucha.

German Chancellor Olaf Scholz said that Putin and his supporters would "feel the consequences" of events in Bucha, while Biden's national security advisor, Jake Sullivan, stated that new U.S. sanctions against Moscow would be announced this week.

“It still seems that the EU is some way from weaning itself off Russian oil,” said analysts at ING, in a note. “Presumably, any moves from the EU toward a Russian oil embargo would see crude prices spike higher again and the euro come under pressure.”

USD/JPY fell 0.2% to 122.58, dropping back further from the multi-year high of 125.10 reached in late March after Bank of Japan Governor Haruhiko Kuroda stated that the recent pace of appreciation was "somewhat rapid," and policymakers are watching moves "carefully."

GBP/USD rose 0.1% to 1.3133, USD/CNY was flat at 6.3638, while USD/TRY rose 0.1% to 14.7092 the day after Turkey’s inflation jumped to a fresh 20-year high in March, with consumer prices rising an annual 61.1% through last month.

Improve your trading skills with us
Get in touch with us: MONEY LIFE RESEARCH