Powell continues dovishness, oil market production increase expected to ferment

[Market Review].

The Fed will not tighten policy quickly. Fed Chairman Jerome Powell testified before Congress and continued his dovish stance, reiterating that while inflation has accelerated to the upside, it is too early to start rolling out easing. The Fed has not yet made a decision on how to reduce its balance sheet. U.S. Treasury Secretary Yellen believes that inflation will continue for several more months. She is also concerned that the U.S. may be in a shutdown because of the epidemic. The good news is that U.S. initial claims recorded 360,000 last week, renewing a new low since March last year.

Gold prices hovered around 1830. Gold prices were supported by Powell’s dovish stance, and the onslaught of the Delta virus also supported safe-haven gold

ECB may maintain easing for a long time. ECB management committee Vesco said it must avoid premature debt reduction, the central bank is not expected to tighten policy for a long time, will begin discussions this month, and continue in September.

Bank of England officials put hawk. Earlier Bank of England member Saunders said that the central bank may stop buying public debt early due to an unexpectedly sharp rise in inflation, and the question of whether to scale back the current asset purchase program early will be discussed at an upcoming meeting. Next Monday, the U.K. will lift all restrictions on vaccination-related activities. Although two-thirds of British adults have been fully vaccinated, scientists warn that another wave of outbreaks will be inevitable when the restrictions end, especially from the more transmissible Delta variant of the virus infection. This overshadowed the outlook for the pound.

U.S. oil continued to close lower. OPEC’s monthly report showed that it expects global crude oil demand to grow at an expected rate of 5.95 million barrels per day in 2021, in line with previous estimates; oil demand is expected to recover gradually over the next year and return to pre-epidemic levels in 2022. The UAE and OPEC+ are still in negotiations, but expectations for a production increase agreement are moving higher. Overnight, U.S. oil continued to close lower.

[Risk Warning].

European Vaccine Rapid Vaccination Euro Watching Support Range

DBS Bank said 1.1695-1.1705 remains a key support level for the EURUSD as the range narrows. Europe has made good progress in vaccination, with the percentage of the population vaccinated at least once in Germany, Italy and Spain already exceeding that of the U.S. As vaccination campaigns advance, the reopening of Europe will have a positive impact on the euro. The current support level range below the euro support is 1.1695-1.1705, but as the range lifts, the pace of the euro’s downside against the dollar begins to slow.

The U.S. yen fell below the support trend line lower concern 109.53

The dollar weakened against the yen; it fell to 109.71 during yesterday’s session, the lowest since July 9. Analysts at TD said the pair faces more downside risk after falling below trendline support last week because of falling U.S. bond yields; TD Securities expects that the next U.S. yen could fall toward key support at 109.53. But watch out, the impact of the Japanese epidemic on the economy may support the pair to some extent.

Australia’s epidemic is severe, the Australian dollar may fall below 0.7350

Westpac notes that global risk appetite remains high, with US equities hovering near record highs and commodity prices very favorable despite the Fed talking about tapering quantitative easing. However, all eyes are on the epidemic, with Sydney in a weeks-long lockdown that also threatens Victoria and a gradual hit to gross domestic product in the third quarter, but once the epidemic is under control, economic activity will quickly rebound. However, compared to the New Zealand Fed, the size of the Australian Fed’s quantitative easing looks very cautious, resulting in a poor performance of AUDUSD, with 0.74 likely to hold steady for a while, but a drop below 0.7350 could follow.

[Key Forecast].

11:00 Bank of Japan may cut economic growth expectations

First, let’s look at the interest rate resolution to be announced by the Bank of Japan. Because of the seriousness of the epidemic, the Japanese authorities have again imposed a state of emergency, leading to a setback in consumption and making economic growth heavily dependent on overseas demand. Sources said that the Bank of Japan will lower its economic growth forecast for the current fiscal year. Due to the solid performance of exports and output, to some extent offset the weakness of consumer demand, the Bank of Japan may maintain the view of a moderate economic recovery. In its new forecast, the BOJ is likely to raise its consumer inflation forecast for the current fiscal year due to the recent higher energy prices.

In addition, Japan may maintain its yield curve control target, keeping short-term interest rates at -0.1% and 10-year bond yields at 0%.

Analysts at Commerzbank pointed out that the Bank of Japan will keep the strength of its strong easing policy unchanged, which will keep the yen under pressure, considering that the current state of Japan’s economic fundamentals is still far from the Bank of Japan’s policy target, and that the pressure of the global epidemic forced Japan to hold the Tokyo Olympics in an empty venue has brought additional economic pressure.

20:30 US retail sales data may strengthen

Finally, take a look at the monthly retail sales rate for June, which will be released in the US. The monthly U.S. retail sales rate has been volatile in recent months, soaring to 9.7% in March and falling to -1.3% in May. Some agencies commented that the monthly U.S. retail sales rate fell more than expected in May, where spending shifted from goods consumption to services. During the new crown pandemic, consumer demand shifted to goods such as electronics and motor vehicles as millions of people worked from home. More than half of U.S. adults are now fully vaccinated, driving demand for activities such as air travel, hotel stays, dining out and entertainment. Vaccinations, a trillion dollar government stimulus and record low interest rates are all fueling demand.

Current market expectations are for a monthly U.S. retail sales rate of -0.4% in June. If the figure meets or exceeds expectations, the dollar index is expected to gain support. Conversely, if it is lower than expected, the dollar index may suffer a blow.

Recent U.S. economic data is exceptionally important because the Federal Reserve looks at these data to speak and will adjust the pace based on economic data, so pay special attention.