FX Market View #18

Following a hawkish view from the FED, the markets have priced in at least one rate hike before the end of next year. This contributed towards a Dollar recovery in the past 7 days; however the technical picture appears stretched. The Dollar near-term trend starting in July is one of strengthening, due to the previous sell-offs being centred on the disappointing jobs data. Only the last jobs report exceeded market expectations, and this had little impact on pushing interest rates higher. In fact the reverse happened with the 10-year yield softening. Otherwise, the typical month-end repositioning are the only factors that have dragged the greenback lower.

The new week begins slowly with the July 4^th holidays extending through to Monday. However, the markets have not lost sight that the second half of the year is now up and running. In a few days the minutes from the last FOMC meeting will be released. Earlier in the year the Dollar Index had been pushed around by FED rhetoric, and their views on the strength and direction of the US economy. Fresh into the New Year the Dollar Index recorded significant lows before climbing to highs within 30 days. The peak was recorded on the last day of the first quarter, followed by a continuous slide until early June. The outcome of FOMC meeting pushed the Dollar Index higher again.

Fridays NFP employment data reported higher than expected numbers. This was the catalyst to reverse some of the Dollar gains evident earlier during the past week. The US economy is currently experiencing robust growth without any significant inflationary pressures, which is a good sign for a healthy economy. Therefore the greenback showed signs of attempting to gain ground again in the new week with lighter trading due to the longer Independence Day holidays. Some Dollar strengthening is likely as the market seeks refuge in safe-haven currencies. Chinese PMI data missing estimates and the global increase in the Delta variant of the corona virus has raised concerns.

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