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Overview of the Market Minutes:
Just days after the ‘goldilocks’ June US nonfarm payrolls report, the US Dollar (through the DXY Index) is reaching levels that would define its high close for July.
The legitimacy of US Dollar strength is being called into doubt by falling US Treasury yields and prospects of a rate hike in the US.
With the European football semi-finals this week and the end of the US holiday weekend, many indices of volatility are continuing to fall.
a mishmash
The yield curve in the United States is flattening. The stock market in the United States is in decline. Some agricultural products are subject to quotas. Markets appear to be in a ‘risk-off’ attitude following the ‘goldilocks’ June US nonfarm payrolls report and US holiday weekend, with the US Dollar (through the DXY Index) near levels that would constitute its high close for the month despite USD/JPY rates sliding back. There’s a strong reason to believe the US Dollar is being pushed higher by the risk-off character of markets rather than any domestic factor: rate hike probabilities aren’t following. By assessing the difference in borrowing costs for commercial banks over a given time horizon in the future, we may determine if a rate hike is priced in using Eurodollar futures. In order to understand where interest rates are headed in the interim period between July 2021 and December 2023, Chart 1 shows the difference in borrowing costs – the spread – for the July 2021 and December 2023 contracts. Contract Spread on Eurodollar Futures (July 2021-December 2023): Chart of Daily Rates (March to July 6, 2021) (Graph 1) There were 107 basis points worth of rate hikes discounted by December 2023 at their top last week, following the June US nonfarm payrolls report; presently, there are 92 basis points factored in. Markets are becoming less hawkish on the FOMC, which has historically coincided with US Dollar weakness. Technical Notes on the Video: The DXY Index is a measure of how well a company The DXY Index is retracing from the 23.6 percent Fibonacci retracement of the 2018 low/2020 high range and the 38.2 percent Fibonacci retracement of the 2011 low/2020 high range near 91.90, returning to familiar terrain. As a result, a bullish outside engulfing bar is formed on a regular basis. The bullish trend is gaining traction. With the full daily EMA envelope aligned in bullish sequential sequence, the daily 5-EMA continues to function as support. The daily MACD is rising and is in bullish zone, while the daily Slow Stochastics are overbought. It’s still possible that a run towards triangular resistance near 92.75 is imminent. An Eye-Catching Calendar With the European football semi-finals this week (today and tomorrow), many indices of volatility are continuing to drop as we emerge from the vacation week. In this perspective, this week’s economic schedule appears to be an oasis: in an otherwise quiet environment, data releases provide solace in the form of event risk volatility. The minutes of the June FOMC meeting are the first item on the agenda, followed by inflation readings from China and Mexico on Thursday, which might set off a chain reaction in the commodity currency complex (AUD, CAD, NZD). ‘High’ Rate Events, Next 48 Hours, DailyFX Economic Calendar (Table 1) —- Christopher Vecchio, CFA, Senior Currency Strategist wrote this article.
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