USD: the comeback kid

USD: the comeback kid

The US came back from the dead as Tuesday’s independence day celebrations came a day early for the US dollar bulls

After yesterday’s innocuous Asia session the USD turned bid en masse as the Pound gave way on the weaker  UK manufacturing PMI. The weaker print makes a case for the data not supporting the Bank of England hawkish tilt.

Pound Slips as UK Manufacturing PMI Dips

And USDJPY bounced after a stronger than expected Tankan survey attenuated any lingering fallout from the LDB trouncing in the July 2 Tokyo metropolitan assembly election.But it was the  robust US ISM data which propelled USDJPY above the critical 113 level fueled by rising US Treasury yields all but supporting  the current Fed narrative to look through the  recent US economic  soft patch

Yen Dips as US Manufacturing PMI Jumps

In US equity markets, the Dow posted a new record backed by energy stocks while the Nasdaq fell as sector rotation out of tech -stock lingers. The tech sector has  reaped the benefits of the low-interest rate low volatility environment, and with the real prospects of rising US interest rates, tech investors are feeling the pain

On commodity markets, Oil prices had a buoyant overnight session as WTI prices didn’t look back from the opening bell on US futures. Some dated headlines in  circulation but I suspect the primary catalyst  is the  US rig count posted its first weekly fall since January fuelling speculation that the rigorous  supply of oil from US shale oil producers is not sustainable below  $45.00 per barrel

The lustre came off gold overnight in a  big way on the stronger US dollar narrative driven by the expectancy of higher US interest rates.

Gold Slide Continues as US Manufacturing PMI Sparkles

However, the big story on currency markets remains the shifting central bank policy narrative. We’ve seen an aggressive pullback from last week’s speculative bets fuelled by the hawkish chorus of central bankers. The USD recovered in part due to the  ISM manufacturing report which surprised with the highest print since August 2014.  But concerns that central banks may temper the hawkish lean for fear of creating unwanted volatility remain in the back of traders minds. Overnight the mystery sources from the ECB were back at it again hitting the airwaves stating  ECB officials were “unnerved” by the market’s reaction to Draghi’s speech. I think it’s safe to say the ECB members are scared of their hawkish shadow and may try to reel in the markets overzealous reaction to Draghi’s  Sintra comments. But headlines aside, the ECB has opened the door to tightening it’s a matter of how wide they’re willing to leave it ajar.

There will be no rest for the weary on the central bank narrative as the  RBA, the Riksbank warrant considerable attention and are likely to keep traders hoping despite the US holiday-thinned  trading conditions

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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