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The Dollar index moves above 50% retracement

The bottom this week was a good one.

The DXY index (dollar index) formed a real nice bottom in trading this week.
The DXY formed a nice bottom this week.
Looking at the daily chart, the low this week stalled near the 200 day MA (green line in the chart above) AND a nice trend line as well.  Holding was bullish. Buyers leaned against the level. Today the price moved above the 100 day MA (blue line) at 97.043.
The US data rewarded the support buyers with a run higher today helped by the better retail sales/industrial production data. GDP estimates were raised with some estimates now at 2% (and above) for the 2Q.
What next?
Drilling to hourly chart, the pair is now trading above the 50% of the move down from the May 30 high.  That comes in at 97.37 and will be close risk for longs. Stay above keeps the buyers firmly in control.   The 61.8% of the move down come in at  97.585. A move above that, and traders will start to eye the ceiling highs from the daily up at the 98.28 to 98.38 area.
The DXY on the hourl chart.

Trump: It doesn’t matter if Xi comes to G20

Trump in Fox News interview

  • China will eventually make a deal with us
  • China is manipulating its currency
  • Fed has set interest rates too high
  • He is in no rush for nuclear deal with North Korea
  • Asked about North Korea breaking sanctions; says everybody breaks sanctions
That’s quite a turnaround from last week when he said he would hammer China with tariffs if Xi didn’t show up.

Abating Risk Appetite Going into the Weekend

Overview:  Worries about an escalation in the Gulf following US accusations that Iran was behind yesterday’s two attacks and weaker growth impulses, while trade tensions remain high, are dampening risk appetites ahead of the weekend.  Equities are lower.  Nearly all the stock markets in the Asia Pacific region fell today with Japan and Australia being the notable exceptions.  The MSCI Asia Pacific Index will take a three-day losing streak into next week.   Europe’s Dow Jones Stoxx 600 is giving back half of the week’s gains with a 0.4% loss through late morning turnover.  Only utilities are posting gains, which is partly a reflection of the continued rally in bonds.  Disappointing Chinese and New Zealand dollar has seen the Antipodean 10-year benchmark yields fall to new record lows, and pushing their currencies lower.  European yields are mostly two to four basis points lower.  The benchmark yields in Germany, Spain, Portugal, and Greece are at new record lows.  The US 10-year yield is off about three basis points to almost 2.05%.  The dollar is firmer against most of the major currencies.  In addition to the heavier tone for the Australian and New Zealand dollars, sterling is also leading the pack lower. For the week, the US dollar has risen against all the majors, though against the yen, it is virtually flat.  Oil is paring yesterday’s gains but is still off 3.8%-4.0% this week, and gold is higher for the 11th of the past 13 sessions and has moved above $1350 for the first time since April 2018.
Asia Pacific

China’s data disappointed, and although the recently announced stimulative measures have yet to be picked up by the data, additional steps to support the economy are likely.  Another reduction in required reserves may be delivered in the coming weeks.  Industrial output slowed to 5% in May from 5.4% in April.  It was weaker than expected and is the slowest pace since 2002.  Fixed asset investment slowed to 5.6% from 6.1%.  It is the lowest since last September.  The one upside surprise was retail sales.  Helped by a long holiday at the beginning of the month, retail sales accelerated to 8.6% from 7.2% year-over-year rate in April.

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This is a market that thinks it has the Fed cornered

Not even strong data can shake the faith in rate cuts

Once upon a time economic data mattered. Now the market is so confident it can bully the Fed into rate cuts that an outstanding retail sales number hardly dents the faith.
Fed fund futures now peg the chance of a July 31 rate cut at 88%, down from 89% before the data. US 2-year yields have ticked fractionally higher but remain on the floor.
Not even strong data can shake the faith in rate cuts
US equity futures remain flat.
Granted, if the Fed signals cuts next week it will be more about trade risks and the future than what’s currently happening in the economy. But what’s currently happening is record low unemployment, record retail sales and sky-high consumer confidence.
There are small signs of weakness but there are always small signs of weakness. Inflation is low but it’s been low forever. If you take away what’s been happening in financial markets and politics then the Fed wouldn’t even be dreaming about cutting.
For years the Fed loved to say it was data dependent. That was a lie.
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For how much longer can the ECB continue to ignore this chart?

The market gauge of long-term euro area inflation expectations has fallen by more than 7 bps so far this week to fresh record lows

EU 5Y inflation swap

After breaching below its 2016 lows following the ECB meeting last week, market confidence towards the central bank being able to normalise monetary policy has continued to take a nosedive this week. The key gauge of long-term euro area inflation expectations is making fresh record lows again in the European morning today, falling to ~1.16%.
It’s been a developing story for the whole of this week and as mentioned before, the surprising thing here is how the euro has been resilient throughout.
Currency traders are either not buying into the story that the ECB will cave and introduce additional stimulus in fear that inflation expectations will start to become deanchored or they are going to have to do some serious catching up over the next few days/weeks if things continue down this current path.
Put to scale, inflation expectations at ~1.16% doesn’t feel like it’s a big deal but the fact is this is pretty much unprecedented in the euro area and there is no doubt that this is a slippery slope that the ECB does not want to continue down with.

IEA says that global oil supplies will increase far more than demand next year

IEA comments in its latest monthly report on the oil market

IEA
  • World oil demand to accelerate to 1.4 mil bpd in 2020
  • But will be offset by production surge to 2.3 mil bpd at the same time
  • Notes that ongoing US shale boom as main reason
  • Says that despite OPEC efforts, they are still pumping much more oil than required
In short, global supply will still outpace global demand in the coming year and if OPEC wants to avoid prices from falling further then they have to step up their production cut quotas – which I don’t see happening.
Either way, that’s good news for consumers in general as this outlook would mean lower oil prices so that should alleviate some burden amid the global trade slowdown.

Gold surges to its highest levels since April 2018

A quick surge higher sees gold move past $1,350

Gold 14-06

Bullion takes out the highs for the year and is running stops above $1,350 as price looks to break out to test the highs of last year again. Gold has been on a tear in recent weeks as global central banks grow increasingly dovish amid global trade tensions, which has helped to reestablish the allure in the commodity as a safe haven.
With the break higher here and the backdrop of major central banks starting to send more dovish signals, it’s hard to argue that gold’s gains will top out near last year’s highs around $1,357 to $1,365. If the Fed is going to follow through on rate cuts with more to come, gold will easily stand out as one of the best performers this year.

Eurostoxx futures flat in early European trading

Flat tones observed in early trades

  • German DAX futures flat
  • French CAC 40 futures +0.1%
  • UK FTSE futures +0.1%
This mainly mirrors the mood seen in US equity futures, which are also trading at flat levels as we begin the session. Risk trades are still mostly searching for direction but I would expect the indecision to continue until we get to the release of US retail sales data later.
As such, I reckon we could expect a more subdued session in the European morning ahead.

Nikkei 225 closes higher by 0.40% at 21,116.89

Tokyo’s main index climbs amid mixed sentiment in Asia

Nikkei 14-06

Asian stocks are generally subdued but the Nikkei is posting gains, taking its cue from Wall Street in overnight trading. Hong Kong and mainland Chinese equities are lower though, with lingering global trade tensions still a cause of concern for investors.

Overall risk sentiment remains more flat but on the cautious side with US futures near unchanged levels while Treasury yields are only a tad softer. USD/JPY holds steady around 108.33 as a result and I reckon markets should stay in this mood awaiting the release of the US retail sales data later.