The day has been mostly quiet as markets prepare for the big week ahead. The US dollar continues to hold, seeing a slight rise across the board. The USD/JPY pair was volatile in Asia but mostly settled in morning trading, settling around 104.62levels.
The US dollar made little progress with the GBP/USD falling to 1.2805 before remaining around 1.2820 levels now – down 0.4% on the day. The EURUSD pair fell 0.3% to 1.0820 while commodity currencies fell slightly as equities have a better mood today.
US futures have risen but it’s too early in the week to say anything about it, especially with big earnings reports coming. Four of the seven central banks will report and that will be one of the things to watch for broader market sentiment, along with meetings of the Bank of Japan, the Federal Reserve and the Bank of England.
Elsewhere, Treasury yields fell during the day, leading to a somewhat mixed start to the new week with gold rising slightly while oil fell despite tensions in the Middle East.
However, today’s recovery appears to be largely driven by covering short positions in anticipation of major events. There is a risk that Bank Japan will raise interest rates this week, which could strengthen the yen and thus put pressure on the Nikkei. Meanwhile, the Fed may start signaling a September rate cut, but market reactions remain uncertain as this has already been priced largely up.
Currently, financial markets are seeing that the Fed has started cutting interest rates from the September meeting and is following the trend again until November or December.
Dollar Rises Weigh on European Currencies and Markets
The dollar’s rally is gaining momentum today, as major European currencies face increasing selling pressure. Breaking last week’s lows in the EUR/USD and GBPUSD pairs suggests that the dollar’s rally is poised to stretch further in the near term. However, the sustainability of this rally will largely depend on market reactions to crucial upcoming events, including the FOMC’s interest rate decision and indices. Pivotal economies such as the ISM Manufacturing Index and non-farm payrolls.
Investors eagerly await the Fed’s next moves, with expectations rising that the Fed will signal impending rate cuts in September. Moreover, there is growing speculation that the Fed may signal openness to the implementation of successive rate cuts in September, November and December. However, if Fed Chairman Jerome Powell adopts a more cautious tone, it could disappoint investors, leading to lower stock markets and a stronger dollar as a safe-haven asset.
As of today, the dollar is the strongest performing currency followed by the Canadian and Australian dollars. On the other hand, the euro is the worst performer. Kiwi and sterling also underperformed. In the middle of the performance spectrum, the Swiss franc and the yen remained stable.
In Europe, the FTSE rose 0.88%. The DAX rose 0.29%. The CAC fell by -0.35%. The British 10-year bond yield was down -0.072 at 4.032. The German 10-year bond yield was down -0.051 at 2.357. Earlier in Asia, the Nikkei rose 2.13%. The Hong Kong Government Bond Index rose 1.28%. China’s Shanghai Government Bond Index rose 0.03%. Singapore’s Street Times index rose 0.52%. and fell the yield of Japanese 10-year government bonds is -0.0333 to 1.029.
Dollar rises against Swiss franc ahead of interest rate decisions
The USD/CHF pair rose to nearly 0.8850 in the New York session on Monday. The Swiss franc is gaining gains as the U.S. dollar rises amid uncertainty ahead of the Fed’s interest rate decision, which will be announced on Wednesday.
The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, hits a new high in two weeks at around 104.60. The Fed is expected to maintain the status quo for the eighth consecutive time as inflationary pressures are above the required rate of 2%. The Fed has made some decent progress in lowering inflation recently, which will force policymakers to discuss rate cuts.
Meanwhile, the Swiss franc will be affected by the CPI data for July, which will be published later on Friday. The monthly CPI is expected to decline by 0.2% after remaining unchanged in June. This would reinforce expectations of further interest rate cuts by the Swiss National Bank.
The USD/CHF pair is recovering strongly from the lower bound of the descending channel formation, on the daily timeframe, where every pullback movement is seen as a selling opportunity by market participants. The 20-day exponential moving average (EMA) near 0.8900 continues to act as a major barrier for the US dollar bulls.
The 14-period RSI is trying to return to the range of 40.00-60.00. The bearish momentum will end if the RSI manages to do the same. However, the overall trend will remain bearish.
In the future, a decisive breakout above the circular resistance level of 0.8900 will open the door to a rise towards the July 17 high of 0.8945, followed by psychological resistance at 0.9000.
