Market Comment – Dollar remains strong ahead of key data, yen surges
Dollar keeps marching north, PMIs on tap
Yen extends rally as traders unwind carry trades
Aussi and kiwi slide on China concerns, loonie awaits BoC
Stocks trade in the red, tech earnings in the spotlight
Traders continue to buy the US dollar
The dollar traded higher against all but one of its major peers on Tuesday and continued to do so today. The exception was the Japanese yen.
With Fed fund futures suggesting little change in market expectations about the Fed’s future course of action, and Treasury yields sliding, it seems that the dollar’s strength may be the result of momentum buying following Friday’s global IT outage, despite the issue being quickly fixed.
Whether the rally will continue may depend on today’s flash PMIs for July, but also on tomorrow’s first estimate of US GDP for Q2. Friday’s core PCE price index may be also closely monitored.
Whether the rally will continue may depend on today’s flash PMIs for July
The Eurozone PMIs have already been released, coming in below expectations and hurting somewhat the euro as the results corroborate the case of a September rate cut by the ECB.
Yen surges to a seven-week high
The yen extended its rally, hitting its highest level in seven weeks against its US counterpart. After hitting a 38-year low of 161.96 at the start of the month, the Japanese currency entered a strong recovery mode, initially aided by suspected intervention, but also due to the intervention leading traders to unwind their carry trades.
The Japanese currency entered a strong recovery mode, initially aided by suspected intervention, but also due to the intervention leading traders to unwind their carry trades
Recent remarks by a senior Japanese politician that the Bank of Japan should be clearer in indicating its intention to normalize policy, may have also helped. The BoJ meets next week, on July 31, and the market is seeing a 57% chance for another 10bps rate hike.
Chinese concerns hit aussie, kiwi; BoC awaited
The aussie and the kiwi extended their tumble triggered after Chinese growth figures missed their forecasts last week and intensified by surprise rate cuts by the PBoC on Monday.
Along with rising expectations of a ceasefire in Gaza, growing concerns about demand in China weighed on oil prices, as well as on bellwether commodities such as iron ore and copper.
The Canadian dollar traded on the back foot as well ahead of today’s BoC decision, with the market being almost 90% confident that officials will proceed with a back-to-back 25bps rate cut. Therefore, a rate cut on its own is unlikely to shake the loonie. Traders may quickly turn their attention to any hints on whether the easing cycle will continue in September as well. If they get enough dovish signals, the loonie is likely to suffer.
If they get enough dovish signals, the loonie is likely to suffer
Wall Street rally in question amid earnings results
All three of Wall Street’s main indices closed slightly in the red onTuesday, with the futures market pointing to more losses ahead of today’s open, despite both Tesla and Alphabet recording positive revenue numbers for Q2.
Perhaps this was due to Tesla reporting its smallest profit margin in more than five years, and due to the bar being set so high for Alphabet that the modest beat was not enough to propel the stock higher.
Moving forward, more earnings from tech giants may be very important in determining whether the rally on Wall Street will continue or whether stocks are indeed overvalued.
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
