Dollar rally pauses as gold recovers some lost ground

[Market Review].

The dollar index retreated sharply. After a round of gains, the dollar index fell back to near the 92 mark during the day, down 0.5% intraday, the biggest drop since May 7.

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 tapering. While New York Fed President Williams continues to stress that inflation is temporary and it’s not time to reduce stimulus, St. Louis Fed President Bullard and Dallas Fed President Kaplan both said the Fed is getting closer to tapering its bond purchases. Overall, more and more senior officials are starting to stand up for tapering of bond purchases, but at the same time there are no stronger signals being released.

Producer price inflation data to be released on Friday will be the focus of attention. As for the stimulus plan, Biden believes there are still problems with the Senate’s bipartisan draft infrastructure plan. Senior staffers said they will continue to explore other legislative paths and will not support the inclusion of certain tax increase motions in the final package.

Gold is back at $1780. Next, let’s focus on gold. Gold prices have shaken back up during the day, rising from $1,760 to near $1,780 currently. The pause in the dollar’s rally has increased gold’s appeal.

Silver regained some of its lost ground. Similarly, silver also recovered some of its lost ground. Silver prices fell to an intraday low of $25.52 per ounce early in the session, then rebounded and rose above the $26 mark for a time, eventually closing up 0.49% at $25.90 per ounce.

The euro rebounded strongly. In addition to gold and silver, non-U.S. currencies also generally rallied. Among them, the euro rose a total of more than 60 points against the dollar, currently trading around 1.19. The turnaround in Europe and the U.S. relies on a weaker dollar. However, the ECB maintained a dovish attitude and continued to limit the euro’s gains. ECB President Lagarde said that the ECB still has room to cut interest rates if needed.

The British pound broke above the 1.39 handle. Let’s look at the British pound again. The British pound also pulled up strongly against the dollar by more than 130 points during the day, rising above the 1.39 mark. On the one hand, the dollar weakened; on the other hand, England is expected to be unsealed on July 19. British Prime Minister Johnson noted that England is on track to lift anti-epidemic controls on July 19 as planned, despite the spread of the Delta variant of the virus, but overseas travel is likely to continue to be disrupted this year.

Bitcoin fell below $32,000 at one point. On the cryptocurrency front, cryptocurrencies suffered a fierce sell-off amid increasingly strict regulation. Ether fell more than 15% intraday; Dogcoin dropped more than 10%; Bitcoin once fell below $32,000, down about 10% intraday.

U.S. oil shook up. Finally, a look at the oil market. U.S. oil continued to shake up during the day, once approaching the $74 mark, continuing to hit a new high since October 2018. Analysis points to a weaker U.S. dollar and lower Cushing crude inventories, coupled with post-Iranian election market expectations that negotiations on the Iran nuclear deal will be delayed, among other factors, all boosting oil prices.

[Risk Warning].

Negative factors still exist European and American upside fears are limited

HSBC believes that the accelerated EU vaccine rollout, the reopening of the economy and related growth, and the groundbreaking EU recovery fund will only allow the euro to strengthen moderately. Once the Fed moves more aggressively toward tapering its bond purchases later this year, the upside for the euro against the dollar will be limited. In addition, there is uncertainty about future EU recovery fund spending. Key elections, such as the German elections in September, may also have an impact on the euro.

The U.S. economy is gradually recovering, the U.S. and Japan still have room to continue to rise

Danske Bank expects that there is room for further strength in the dollar against the yen. As the U.S. economy opens up, it will catch up with Asia and outpace it in the vaccine race, especially Japan. This will continue to push U.S. Treasury yields higher, while the Bank of Japan will remain reluctant to allow Japanese bond yields to move significantly higher because inflation is far from target. It would take a change in risk sentiment to get the dollar back to 100 against the yen, causing U.S. interest rates and commodity prices to fall again.

Australian dollar under more pressure, fearing a drop to 0.70

The chief economist at St. George’s Bank in Sydney said the market expects the Fed may start tapering early next year and that the Australian dollar will face more downward pressure against the U.S. dollar, falling to 0.70 before demand picks up. he also revealed that the bank has lowered its expectations for the Australian dollar against the U.S. dollar to 0.80 by the end of this year.

[Key Forecast

Wednesday 02:00 Powell may mention tapering of bond purchases

Tomorrow morning, Federal Reserve Chairman Jerome Powell will speak. Last week, the Fed brought forward its rate hike expectations and said it would raise rates twice in 2023. Powell said at a press conference that the outlook for economic recovery remains risky, that inflation is likely to remain high for the next few months before moderating, and that factors affecting job growth should weaken in the coming months. Early this morning, he reiterated that inflation has continued to move higher recently, economic activity and employment continue to strengthen, and the labor market continues to improve.

In summary, Powell or reiterated that the higher inflation is only temporary and will be evaluated based on economic and inflation data to see if the scale of bond purchases can be gradually and orderly reduced.

Relatively speaking, Powell’s attitude may be slightly more dovish than the Fed’s resolution. If Powell delivers a more dovish speech, you need to beware of the risk of a dollar pullback and gold price rebound.

Wednesday 04:30 API crude oil inventories may decrease

Next, come to focus on API crude oil inventories. Last week, API reported a decrease of 8.537 million barrels in US crude oil inventories. Then the EIA crude oil inventory released decreased by 7.355 million barrels, decreasing for 12 consecutive weeks. Some market analysts say that the rise in oil prices is still not showing much sign of slowing down, which means there is concern that if oil prices rise too high, we may start to see early signs of demand being undermined.

By the end of the week, the market expects that U.S. API crude oil inventories could fall by 3.625 million barrels in the week to June 18. If the release is larger than expected, oil prices may come under pressure; conversely, oil prices may rise.

Also look out for news from Iran, where talks to restart the Iran nuclear deal were suspended on Sunday after hardline judge Leahy won the Iranian presidential election. Both Iranian and Western officials said Leahy’s victory is unlikely to change Iran’s negotiating position. The two diplomats said they expected consultations to be suspended for about 10 days. If the two sides reach a deal, Iran could export an extra 1 million barrels a day of crude from storage facilities for more than six months, which would put downward pressure on oil prices.