[Market Review].
The dollar index was slightly higher. The U.S. dollar index was slightly higher before the U.S. market, standing on the 92 mark and refreshing a new high of nearly a week. Although the dollar index has been on an upward trajectory since the Fed’s interest rate resolution was announced this month, overall, the gains have been modest.
Many investors are awaiting the release of the non-farm payrolls report on Friday. The report may further confirm the Fed’s monetary policy direction. Until then, investors will also be watching the U.S. consumer confidence data due out later today, as well as the U.S. ISM manufacturing index due out on Thursday for clues on the direction of interest rates.
As for the U.S. economic stimulus package, the White House said President Joe Biden intends to sign two bills on infrastructure spending. Nonetheless, the two parties are still far apart and should continue to negotiate.
Gold prices fell slightly. Next, let’s focus on gold. Gold prices rose slightly in Asian trading before falling back to near $1,772, then traded narrowly in the $1,772-$1,783 range before finally closing down 0.13% at $1,777.89 per ounce. Gold investors were disoriented by the Fed’s bickering over inflation.
Silver oscillated sideways. In silver, after breaking above $26 in Asian trading, silver prices hovered above and below that mark during the day, eventually closing at $26.04 per ounce.
The euro oscillated in a narrow range. Turning to non-U.S. currencies, EURUSD traded mainly in the 1.19-1.1940 range during the day, currently hovering at 1.1920.
The British pound rose and then fell. Then turn your attention to the British pound. GBPUSD rose and then fell during the day, oscillating down after touching a high of 1.3939 and currently hovering around 1.3860. The epidemic has rebounded in the UK, adding some concern to the market. According to the latest data, the U.K. reported more than 20,000 new crown cases in a single day, the highest since Jan. 30.
U.S. oil surged higher and retreated. Finally, a look at the oil market. U.S. oil retreated after hitting a high of $74.42 since October 2018, the biggest drop in a week. Oil prices came under pressure as the market expects a possible decision by OPEC+ to increase production at its upcoming meeting amid the threat posed by the Delta variant of the poisonous strain to the rebound in crude demand. In addition to this, we also note that the US is carrying out airstrikes on the Iraqi and Syrian borders. This move has brought new uncertainty to the negotiations around Iran.
Risk Warning]
Europe may be affected by the epidemic again. EURUSD is looking down at 1.17
Rabobank expects EURUSD to fall to 1.19 after one month, and 1.19 and 1.17 after three and six months, respectively, mainly because the Delta mutant strain may spread to Europe in the summer, weakening confidence in the European economy. In addition, the euro failed to hold above 1.1950 against the dollar last week, dampening the confidence of euro bulls.
Long and short factors are intertwined, the pound is expected to narrowly oscillate
Analysts at UOB pointed out that the pound is expected to remain in a narrow consolidation trend against the dollar this week. The currency pair will be supported at 1.3860. If it loses that level, then 1.3820 below will be strong support.
Further dovish language from Fed officials to reassure the market, as well as overall positive risk sentiment in global markets, will curb further strength in the dollar index. However, at the same time, the repeated and delayed unsealing of the UK epidemic, as well as the contradictions between the country and the EU, will curb the upside of the pound, and it will still be difficult to break through and stabilize the 1.40 handle. Therefore, for quite some time to come, the pound against the dollar is expected to oscillate repeatedly in the 1.3820-1.4020 range.
Double positive combination of the New Zealand dollar will continue to rally
According to ANZ, thanks to the rise in short-term interest rates and the easing of the epidemic, the New Zealand dollar is off its lows after the Fed’s interest rate resolution. The bank expects the New Zealand dollar will continue to rally, but the pace may slow down. Technically, NZDUSD support levels are 0.6703, 0.6800 and 0.6900, and resistance levels are 0.7100 and 0.7230 in that order.
[Key Forecast].
21:40 Lagarde expected to maintain a dovish stance
First, let’s focus on the upcoming speech by ECB President Lagarde. Last month, the ECB left three key interest rates unchanged and expects rates to remain at current or lower levels until the inflation outlook is close enough to, but below, 2%. The ECB confirmed that it will significantly accelerate the pace of purchases under its emergency anti-epidemic bond purchase program this quarter, which will last until at least the end of March 2022.
Last week, Lagarde said that inflation could rise further in the fall, but that this is only a temporary move higher; she also noted that economic activity will accelerate by this quarter, but that tightening is premature and will continue fiscal and monetary support policies.
Taken together, we believe that Lagarde is likely to maintain a dovish stance, stressing that inflation is still far from the target and that a sustained easing stimulus program is needed. Combined with Lagarde’s recent statements, her comments are likely to drag on the euro.
Wednesday 04:30 API crude oil inventories fear continued decline
Next, come to focus on API crude oil inventories. Last week’s API report showed that US crude oil inventories decreased by 7.199 million barrels. The EIA crude oil inventories were then released down 7.614 million barrels, falling to to 459.1 million barrels, the lowest since the week of March 20, 2020.
By the end of the week, the market expects that U.S. API crude oil inventories may decrease by 4.46 million barrels for the week ending June 25. If the published value is larger than expected, oil prices may come under pressure; conversely, oil prices may rise.
It is also important to keep an eye on the meeting to be held by OPEC+. The organization may discuss the scale of production increase, with some analysts pointing out that OPEC+ may announce a 500,000 to 1 million barrels per day increase in production in August. Some analysts also believe OPEC may take a more cautious stance and only increase production by 100,000-200,000 barrels per day. The market currently has a consensus on the size of the OPEC+ production increase, so the OPEC+ meeting needs to be watched closely.
Wednesday 07:15 Lowe may maintain a cautious stance
Finally, pay attention to the speech to be delivered by Australian Fed President Lowe. At the beginning of this month, the Australian Fed announced that the benchmark interest rate and 3-year Treasury yield target were both unchanged at 0.1%, in line with market expectations. The Fed reiterated that it is unlikely to raise interest rates before 2024, and that the committee will not raise the cash rate until real inflation remains within the target range of 2% to 3%, and will consider yield targets and further quantitative easing at its July meeting.
In the middle of the month, Lowe said the economy is still in a recovery phase and inflationary pressures remain under pressure. Yield curve control will be determined by the likelihood of interest rate increases over the next three years, and it is not yet time to discuss stopping bond purchases. On balance, Lowe is likely to maintain a cautious stance, stressing that inflationary pressures remain and easing will continue. This could drag down the Australian dollar.
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