Mid-Week Market Report - Dollar Staging Recovery as Gold pressures

TigerWit Africa

After a sluggish start to the week due to Monday’s bank holidays in the US and UK, the markets are back with support for safe-haven instruments. Equities are pressured on Tuesday and early on Wednesday while the dollar escapes the bear’s net although temporarily so far. 

Markets’ moves in recent days remain indecisive as positive data, central banks’ comments and fresh partial lockdowns divide investors’ opinions. The current drives are coming short and sharp. The dollar shed most of the last week’s gains, driven by positive data, after Fed Governor Bernard’s dovish comments. Treasury yield remains upbeat despite the recent dip and thus forcing Gold below 1900. Meanwhile, the oil market started July shedding profits as Covid hooked some of its largest consumers thus raising concerns for near-future demand. Let’s look at some of the major highlights so far this week and what’s coming next.

US Equities decline again after Brainard’s dovish comments

US traders resumed work on Tuesday after the Monday holidays. The S&P 500 dropped about 11 points on Monday before Tuesday’s spike above 4230. However, later on Tuesday, the market had a massive setback with the S&P 500 taking a dive from just above 4230 to prices below 4200.

Fed Governor Brainard said further progress is expected in the coming months as the economy recovers fast. Despite the recovery, she said the recovery has not yet reached the bank’s goals and mandates. She downplayed inflation again saying it will fade over time and maximum employment will come eventually. However, the Fed will continue its current asset purchases and will only adjust if necessary.

Early on Wednesday, S&P 500 still trades below 4200 while the NASDAQ and Dow trade at 13650 down 103 points wtd and 34555 down 275 points wtd respectively.

Dollar stages another recovery

The dollar is back upside on Wednesday after the Fed’s Tuesday’s dovish comments dragged the DXY to 89.6 and erased almost all of late May gains. Upbeat domestic data continue to support bids for the dollar together with the current general downbeat risk tone as fresh lockdowns are being considered in some countries following Covid resurgence. The DXY is back above 90 as a result and further rallies could follow to break above 90.5  and up to 91 especially if Friday’s employment data come much better than market consensus.

Fresh lockdown pressurizes Aussie in spite of upbeat data

The RBA decided to keep both the cash rate and the 3-year yield target unchanged at 0.1% and will not increase until actual inflation hits the bank’s 2-3% target range. However, the RBA governor said the top priority remains maximum employment. The bank also forecast that the conditions for a rate hike are unlikely to be fulfilled until 2024. Meanwhile, nothing changed concerning asset purchases.

AUDUSD couldn’t sustain the rally to 0.777 early in Tuesday’s Asian session despite an upbeat GDP figure. The pair dropped to 0.773 before picking again to retest the same level as the dollar weakens. Meanwhile, the current risk-off supports the dollar and pressures the Aussie. The Kiwi currently trades around the 0.7725 intraday support as it eyes 0.77 psychological level.

Risk-off supported: CHF and JPY recover

CHF and JPY recover slightly across the board on Wednesday but the dollar outpaces both. USDJPY trades around 109.8 in the first hour of the London session after rejecting a break below 109.3. The pair will attract the 110 psychological level later today if the status quo remains. Also, the USDCHF regains recovery and now needs enough momentum to sustain a break above the 0.9 key level toward 0.905.

Risk-on FX lose bids – AUD, NZD & CAD dip

High beta Aussie, Kiwi and Loonie are currently taking some beating. After a hawkish RBNZ lifted NZD to $0.73 last week, the currency could not sustain the breakout as the psychological level resisted firmly.NZDUSD is off to retesting the 0.72 psychological support. below 0.72, the bears could push further to 0.715.

CAD has been one of the top-performing FX this year as higher commodity prices, economic recovery and a bullish BoC push with vigor. USDCAD is recovering toward 1.21 after plummeting to prices shy of 1.2. If the oil price sheds more profit and the dollar adds to gains, we should see the currency pair surge toward 1.22 to complete what could be the biggest recovery since April.

Commodities minor dips on the back of a bullish dollar

Dollar-denominated commodities hit major resistance on Tuesday and have been on the back foot as the dollar takes the lead. Gold rejected a break into 1920 before falling 240 pips on Tuesday to 1892. The yellow metal has since stayed rangebound between 1892 and 1903. If a breakout happens downside, below 1893, the commodity will most likely drag further downside to retest 1875 key area.

Meanwhile, oil prices might take a similar path with OPEC+’s plan to stick to the existing plans of easing output cuts in June and July despite possible lower demands as a result of lockdowns in India and Japan – two of the world’s largest oil importers. WTI has returned to $68 but might plunge further to $67 or even retest the $66.

Looking ahead

RBA Deputy Governor speaks in the last hour of the New York session later today. On Thursday, USD ISM PMI, crude oil inventories and BoE Gov Bailey’s speech. Before the US data, Aussie retail sales in the Asian session and then US ADP non-farm employment change and unemployment claims will take the central stage. Meanwhile, investors will continue to weigh the statements of other US Fed Governors this week.

On Friday, SNB and RBNZ Governors will speak at the start of the London session before their ECB counterpart Lagarde in the heart of the session. By far, the biggest events will come at the start of the New York session when the US and CAD employment data for May will be announced. The week is still loaded!

Disclaimer: This communication is for informational purposes only and should not be viewed as any form of recommendation as to a particular course of action or as investment advice. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This communication has been prepared based upon information, including market prices, data, and other information, believed to be reliable; however, TigerWit does not warrant its completeness or accuracy. Trading CFDs involve risk and can result in loss of capital.

Leave a Reply