Dollar Forges Higher High
DOLLAR: The dollar has forged a higher high to start the new trading week and appears poised to fill a gap up at 101.295/101.315. While the US Fed and the ECB are both expected to hike rates later this week, the trade continues to see the US economy in a better position than the euro zone. In fact, soft euro zone business activity readings overnight should create concern that a desire to normalize rates in Europe are premature and carry more risk than US rate hikes. Unfortunately for the bull camp the dollar could see a measure of back and fill following today’s scheduled data, but the ultimate bias remains up with targeting of 102.00.
EURO: As indicated already, the euro remains on a downward track because of disappointing business activity data released overnight. In fact, given the aggressive spike down early move, a down trend for the week could be entrenched already. The euro is also vulnerable from a large net spec and fund long positioning built in from the July rally of 400 points.
YEN: While the Yen has rejected the 71.00 level for a 2nd straight session (at least initially) disappointing Jibun Bank manufacturing PMI readings for July heavily offset recent Bank of Japan hints of a tweak in policy away from unprecedented accommodation. However, despite the respect of 71.00 the fundamental bias is down, and we see a target of 70.68 in the days ahead.
SWISS: The bull camp hopes the 180-point correction off the July high has balanced what was a very significant overbought condition created by the July rally of 550 points! At least to start the 1.160 level offers suspect support but fundamentals leave the trend pointing down and aggressive compacted gains earlier in the month leave little chart support until significantly below this morning’s early trade.
POUND: The fundamental and technical bias is down in the Pound to extend last week’s bearish track into the new trading week. In fact, a lower low for the move (a 6th straight lower low) combined with disappointing S&P global composite, manufacturing, and services PMI readings for July in the UK provide a definitive bearish environment. Initial targeting is 1.2750 but that level is unlikely to hold into the US Fed decision on Wednesday.
CANADIAN DOLLAR: With the Canadian peeking out to the downside with a 4-day low, the US dollar back in favor and disappointing Canadian economic news from less robust than expected Canadian retail sales last week we expect the currency to test 75.57 directly ahead.
STOCK INDEX FUTURES
Global equity markets overnight were lower except for the markets in Japan, Russia, and Germany. Despite weakness in global equity markets overnight the US market is showing early signs of positive action. Perhaps the trade is anticipating evidence of another looming pause in the US rate hike cycle, with this week’s rate hike announcement accompanied by suggestions inflation has moderated and the Fed will become even more data dependent ahead. Earnings announcements will include Cadence Design Systems after the markets close.
The S&P is showing initial positive action and that highlights confidence in the US economy to withstand what could be the last rate hike of this year. While the Dow futures remain just under last week’s upside breakout, the large company index has remained relatively stronger than other sectors of the market through the recent corrective dip.
While treasury prices this morning are showing little definitive direction and may not show direction until after the widely anticipated US rate hike (the CME Fed watch indicator puts the probability of a 25-basis point rate hike at 99.1%) there is the potential for significant fireworks this week. Even though recent US scheduled data has been mixed, there has been evidence of a loss of momentum or simple idling and that should provide a measure of fundamental support under prices this week. An example of the loss of momentum/stagnation of economic data will likely be seen this morning with a minimal gain in the Chicago Fed national activity index offset by mixed to slightly softer US PMI data. It should be noted that positive equity market action in the first 3 weeks of July helped shape US economic sentiment into a positive as economic results have been mixed. In fact, chart support from 3 months of consolidation could be solid in September bonds at 125-16. Not surprisingly, speculators remain moderately net spec and fund short under the view that rates are starting a long and slow grind higher in a historical adjustment. The Commitments of Traders report for the week ending July 18th showed Bonds Non-Commercial & Non-Reportable traders net sold 6,193 contracts and are now net short 115,596 contracts. In fact, the net spec and fund short in T-Notes remains massive at 642,320 contracts in a sign that the market is heavily invested in the bear case. T-Notes positioning showed Non-Commercial & Non-Reportable traders net bought 51,492 contracts and are now net short 642,320 contracts. The North American session will start out with June Canadian wholesale sales which are expected to have a sizable downtick from May’s 3.5% reading. The Chicago Fed’s June national activity index is forecast to have a modest uptick from May’s -0.15 reading. A “flash” reading on US manufacturing PMI is expected to have a minimal uptick from the previous 46.3 reading. Earnings announcements will include Cadence Design Systems after the markets close.
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