[Market Review
Powell released a “dovish” signal to suppress the dollar. Early this morning, Federal Reserve Chairman Jerome Powell spoke to Congress on the response to the new crown outbreak and the economic outlook. Powell reiterated his dovish stance at the meeting, saying that the Fed will continue to promote a broad and comprehensive job market recovery and will not raise interest rates early simply because of concerns about soaring inflation, nor will it raise rates because it thinks the employment rate is too high, but will wait patiently for evidence of actual inflation or other imbalances.
During Powell’s hearing, 10-year U.S. bond yields sank; the dollar index fell further, hitting a low of 91.65.
In addition, the U.S. government admitted that it would not be able to reach the vaccination target set by Biden before the U.S. Independence Day holiday on July 4. Renewed concerns about the outbreak also dampened some of the positive sentiment.
As for the U.S. economic stimulus package, the White House said Biden said he was encouraged by the state of bipartisanship taken in the infrastructure bill negotiations, but remained concerned about problems with related policies and financing. The White House press secretary revealed that the White House team will meet again tomorrow with a bipartisan group of senators.
Gold remains weak. Moving on to gold, Powell’s dovish comments put pressure on the dollar, but investors did not buy Powell’s account, and investors are still upset about the Fed’s hawkish stance last week. Gold prices fell slightly during the day, closing near $1,778. This Friday’s U.S. PCE data could reignite market concerns about early Fed tightening.
Silver was under slight pressure. Silver moved roughly similarly to gold, also under slight pressure. Silver prices fell from $26 to near $25.60 at one point during the day.
The euro rose for the second day in a row. In non-U.S. currencies, the euro rose more than 20 points against the dollar during the day. Although the eurozone still wants the spending plan to continue to stimulate the economy, while the European Central Bank’s attitude is also more dovish, but in the dollar retreat, the currency pair is still supported, slightly up.
The British pound fell and then rose. In the British pound, the pound fell against the dollar during the day and then rose. On the one hand, the weakness of the dollar supported the pound; on the other hand, the possibility of a truce between the UK and the EU over the trade dispute in Northern Ireland also mitigated the downside risk to the pound.
U.S. oil was narrowly shaken. Finally, to look at the oil market, U.S. oil oscillated sideways during the day around $73. Data released in the morning showed that US API crude oil inventories plunged by more than 7 million barrels. Plummeting inventories, surging demand during the peak driving season, limited potential for near-term supply growth, and a strong statement from Iran’s president-elect are all favorable for oil prices.
However, the global spread of the mutated strain of Delta may constitute a factor limiting oil price gains in the short term. In addition, the OPEC+ meeting on July 1 is also worth watching. It is reported that Russia expects the current global oil production shortage to continue in the medium term and is therefore considering increasing production.
[Risk Warning].
The dollar still has room to rise. Expected to break 92.55
UOB Singapore pointed out that despite the previous drop to 89.54, the dollar index broke through the major trend line connecting last March’s high of 102.99 and this April’s high of 93.44 last week, and this strong momentum suggests that a break above 92.55 is possible. A weekly close above 92.55 would greatly increase the likelihood that the dollar index will rise to 93.44 within these two months.
The euro is at risk of retracement, with a drop to 1.15 by the end of the third quarter.
Analysts at Danske Bank pointed out that if there is more economic data afterwards to further confirm the U.S. economic rebound and the upward trend of inflation, it will deepen the Fed’s tightening expectations and push the dollar index to continue to strengthen. In contrast, the euro zone, whether in economic growth, employment recovery or inflation rise are lagging behind the Fed a cut, its emergency easing measures no surprise should continue to continue. This situation, the euro against the dollar at the end of the third quarter is expected to go further down to 1.15 a line.
The U.S. and Japan are expected to have room to make up for the short term to 111.13
Commerzbank pointed out that last week in the Federal Reserve interest rate resolution, the impact of market risk sentiment, the yen did not continue to fall with other non-U.S. currencies to record lows, the year’s high of 110.97 is still strong short-term resistance to the dollar against the yen.
However, if the U.S. economy and high inflation data is further confirmed and approved by the Federal Reserve officials, then the dollar against the yen followed by water rising is inevitable.
The upside target is last week’s high of 110.82, after which the 111.13-111.38 range formed by the low at the end of 2018 to the high in early 2019 will be the key target for the bulls. 112.23-112.50, the high from April 2019 to the first quarter of 2020, is the medium-term upside stage target. As long as USDJPY holds above 108.56, the uptrend since the beginning of the year will not be easily reversed. Every pullback above this is a good opportunity for the bulls to enter the market or add to their positions.
[Key Forecast].
22:30 EIA crude oil inventories expected to decline
First, let’s take a look at EIA crude oil inventories, which were released last week with a decrease of 7.355 million barrels. This morning, API crude oil inventories have been released and decreased by 7.199 million barrels, a much larger drop than expected. The financial blog Zero Hedge commented that the drop in crude oil inventories was larger than expected for the fifth consecutive week and that EIA crude oil inventories are expected to fall for the fifth consecutive week this week, while gasoline inventories are expected to record an increase for the fourth consecutive week. Oil broker PVM said the risks to oil prices remain skewed to the upside due to tight spot markets and good demand expectations
Based on past experience, API inventory data and EIA inventory data have a relatively strong positive correlation, so EIA crude oil inventories could also decline significantly.
Even so, it is still necessary to pay attention to the current market expectations, the U.S. to June 18 week EIA crude oil inventories or a decrease of 3.625 million barrels, if the release of data more than expected, oil prices may short term dip; if the inventory data is less than expected, oil prices are expected to strengthen.
23:00 Bostick may release a cautionary signal
Then, to focus on the Atlanta Fed President Bostic will be published by the published speech. After the Fed released hawkish signals at last week’s meeting, a number of senior Fed officials have come out to speak this week, continuing to talk about the U.S. economy and debt reduction. While New York Fed President Williams continues to stress that inflation is temporary and it is not time to scale back stimulus, St. Louis Fed President Bullard, Dallas Fed President Kaplan, San Francisco Fed President Daley, and Cleveland Fed President Meister have all said that the Fed is getting closer to tapering its bond purchases. Overall, more and more senior officials are beginning to favor discussing tapering of bond purchases, but at the same time, they are not releasing stronger signals.
Bostic said at the end of last month that the resilience of the U.S. economy exceeds expectations and that higher inflation is only temporary; if good progress is seen and the economy can stand on its own two feet, it would favor a more normalized policy.
Taken together, Bostic may release a cautious signal, stressing that inflation is only temporary and it is not yet time to scale back bond purchases. Although Bostic doves are more likely, but also be wary of his talk of tapering bond purchases, once he unexpectedly releases hawkish signals, the dollar index may move higher.
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