[Market Review].
The US Dollar Index continues to climb. Yesterday, U.S. ADP employment recorded an increase of 692,000 in June, slightly exceeding expectations. ADP chief economist said that the job market recovery remains strong, with strong job growth seen in the second quarter, suggesting that tomorrow night’s non-farm payrolls data could be decent, which pushed the dollar index higher, and the market established dollar bullish option positions ahead of Friday’s non-farm payrolls data release. Global concerns over the new strain of Delta Coronavirus have intensified, continuing to boost the safe-haven dollar. Dallas Fed President Kaplan said he would prefer to taper debt by the end of the year, which continues to reinforce the Fed’s hawkish stance.
Gold fell more than 7% last month. The U.S. 10-year U.S. bond yield fell below 1.45% at one point, limiting the dollar index’s gains and supporting gold. However, investors had good expectations for the upcoming U.S. jobs data, which in turn fueled concerns about the Fed reducing asset purchases; with the Fed turning hawkish and the dollar rising with it, spot gold fell more than 7% cumulatively last month, the biggest monthly drop since November 2016.
Silver stood at $26. In contrast, silver has been strong, erasing the previous day’s losses yesterday and is now back above $26 an ounce.
The euro fell to 1.1845 at one point as the dollar rose across the board against the G10 currencies, with the euro falling for a third straight day against the dollar, hitting a low of 1.1845 earlier since April 6 and falling more than 3% last month. Supported by options-related buying from, the euro rebounded from its intraday lows.
The British pound sank sequentially. Approaching the previous low of 1.3786, the Bank of England chief economist Haldane said that by the end of this year is expected to be closer to 4% inflation in the U.K., rather than 3%. He was “disturbed” by the Bank of England’s balance sheet of nearly 1 trillion pounds and suggested that central banks need to act on inflation sooner rather than later. If the Bank of England released the signal to tighten policy, the pound will be supported.
Focus on the OPEC conference. Finally coming to the oil market, US EIA crude oil inventories fell by 6.718 million barrels last week, the sixth consecutive week of recorded declines, with US oil stocks falling to their lowest level since March last year and Midwest oil stocks falling to their lowest level since February 2020. On the eve of the OPEC conference, neither the long nor the short dare to move much, with sources saying OPEC+ is expected to discuss the possibility of extending the oil supply deal beyond April 2022. Yesterday, the OPEC+ Joint Technical Committee highlighted a rebound in oil demand and strong growth expected in the second half of 2021, but warned of uncertainty over the pace of the global economic recovery and the spread of a virulent strain of new crown variants. OPEC+ has not yet determined whether to increase production in August, as Saudi Arabia and Russia remain at odds.
[Risk Warning].
If the non-farm payrolls data is positive, there is more room above the dollar
Analysts at Bank of Tokyo Mitsubishi UFJ pointed out that if the U.S. non-farm payrolls data in June turn positive across the board, then the dollar index is expected to open up more upside as the prospect of the Fed starting to taper QE at the end of the year, will be further confirmed, while U.S. bond yields may also record a sizable recovery. Considering that this is the first monthly employment report after the Fed loosened its tongue, its degree of attention and data impact will also be more than ever, so if the data is as good as expected, the dollar rally momentum will open further, but if the non-farm payrolls data performance is again poor, the dollar index may return to below 90.
The U.S. and Japanese prospects are optimistic and expected to rise to 112.50
Commerzbank technical analysis said that if the dollar breaks through 111.13 and 111.38 resistance, the next target points to 112.23-112.50, as long as it remains above the 2021 uptrend line of 109.97, then the outlook remains optimistic, need to hold steady at the end of May low of 108.56 above to maintain the overall bullish trend.
Gold prices may fall below 1700 in the future, dragged by double factors
Gold prices have retreated 8.6% from the highs of early June. Currently, traders will be watching economic data and Fed officials’ speeches for more clues about the size reduction. Morgan Stanley said the upcoming code cuts put upward pressure on real interest rates and the dollar, leaving gold at downside risk in the second half of the year. The bank predicts that gold prices will fall to just below $1,700 an ounce in the next six months and could fall sharply in 2022.
[Key Outlook].
TBD The 181st OPEC General Assembly takes place
Because of the impact of the epidemic, OPEC+ began cutting production by about 10 million barrels per day since last May and will phase out production cuts by the end of April 2022. With the vaccination and the gradual improvement of economies, OPEC+ began to gradually control the scale of production cuts, which will remain at 5.8 million barrels per day as of July.
OPEC+’s Joint Technical Committee expects crude oil supply to be in surplus by the end of 2022. The report said the oil market will be undersupplied in the short term, but a supply surplus will emerge once OPEC+ production cuts end. The committee expects global oil demand to grow by 6 million barrels per day in 2021, but the market faces significant uncertainties, including divergent global economic recovery, escalating sovereign debt, uneven vaccine rollouts and increased cases of Delta coronavirus variants.
Against this backdrop, OPEC+ postponed the Joint Ministerial Oversight Committee meeting to allow countries more time to resolve their differences. Russia is considering proposing an increase in production, but Saudi Arabia has hinted that it prefers a gradual approach. There are reports that the OPEC+ committees, on Tuesday and Wednesday, will analyze market data ahead of the ministerial meeting.
OPEC+ could raise production by about 550,000 barrels a day in August, according to data from a Bloomberg survey, yet that’s just a quarter of OPEC+’s own projected global supply shortfall for the month. OPEC watchers said the group could leave production unchanged when it meets today at the ministerial level, or it could increase production by more than 1 million barrels a day, or just 500,000 barrels a day, with the current differences unresolved .
From a demand perspective, the IEA’s monthly report in June has made clear that global crude oil demand will reach pre-epidemic levels next year; global consumption will again exceed 100 million barrels per day in the second half of 2022 as developed economies get the epidemic under control.
15:00 Lagarde expected to maintain dovish stance
Last month, the ECB left three key interest rates unchanged and confirmed that it will significantly accelerate the pace of purchases under its emergency anti-epidemic bond purchase program during the current quarter. Last week, Lagarde said that inflation is only temporarily higher; she also pointed out that economic activity will accelerate by this quarter, but it is still too early to discuss tightening 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.
20:30 U.S. initial claims expected to decrease
Finally, take a look at the initial jobless claims that will be released in the US. Last week’s figure was recorded at 411,000. Agencies commented that initial jobless claims for Americans decreased last week as the economy reopened and the labor market recovered from the new crown epidemic, but the lack of willing workers could hinder faster job growth in the short term.
Currently, the market expects that the number of initial jobless claims in the U.S. for the week to June 26 will be 393,000. If the published value is much higher than expected, the dollar index may come under pressure; conversely, if the published value is less than expected, the dollar index may strengthen.
The market generally expects that the number of initial jobless claims will decrease, which will have some support for the dollar index.
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