US Open Note – Dollar fizzles despite tapering hints; European stocks at fresh record highs

Delta fears 

The rest of the day will be quiet in terms of data releases but there are enough things happening globally to keep investors busy in the next sessions.

The delta outbreak has stretched to China, which has been out of the Covid headlines for a while, forcing authorities to halt flights and other public transports towards Beijing. With the second biggest economy of the world teaming up with other Asian economies to fight against the troubling new Covid variant, there are growing fears that the “transitory phase” of supply constraints and therefore high inflation could last for longer, consequently weighing on economic growth.

The above is somewhat justifying the increased demand for safe-havens such as government bonds, which pressed the 10-year Treasury yield closer to its previous low of 1.1218% and sent the German equivalent to a fresh low of -0.486% today.

Safe havens outperform dollar despite tapering headlines

However, the calm response from central banks is showing that there is no big anxiety in the financial world over the new wave of infections as the vaccination programs are said to have built a net of safety in several regions, and the previous months have proven that economies can quickly bounce back after a period of restrictions.

The RBA was one of the central banks to keep its bond tapering commitment in place early today despite the fast-growing but not so vigorous infections in Australia, helping aussie/dollar to crawl up to the 0.7400 resistance area and become one of the best performing pairs of the day after kiwi/dollar.

Comments from Fed speakers also reminded investors that bond tapering plans are underway in the US ahead of Friday’s Nonfarm payrolls report, with Fed officials Brainard and Waller providing new hints that the central bank could start reducing its bond purchases as soon as October this year. Specifically, the former believes that September’s employment figures due in early September could be critical to determine the need for bond purchase reductions, while the latter said that an employment increase of 1.6 – 2.0 million in July and August could be enough to put tapering plans into action. Investors will be also interested to hear Fed board member Bowman’s speech today at 18:00 GMT.

Nevertheless, the US dollar could not reclaim any ground from the traditional safe-haven currencies during the European trading hours, sliding lower to test the 109.00 support region against the yen and printing a new two-month low of 0.9022 versus the Swiss franc.

Watch out option expiries

In European currencies, euro/dollar is pushing for some gains, but it continues to face a ceiling around the 1.1880 number. Some 1.3 billion euros' worth of options are set to expire around 1.1850 today at 10:00 am New York time, while another 1.2 billion euros will be off on Thursday around 1.1800. Hence, downside pressures could face some limitations but not for long if the Fed opens the door for monetary tightening at the Jackson Hole symposium in late August.

Pound/dollar is also heading for a soft but positive close, though whether it can breach the 50-day simple moving average, which is currently capping bullish actions at 1.3930 remains to be seen.

Earnings boost European stocks; commodities on the back foot

Turning to stock markets, another flow of upbeat earnings results from the energy and banking sectors boosted the pan-European STOXX 600 index to fresh record highs, while US futures tacking the S&P 500, Nasdaq 100 and Dow Jones are pointing to a mildly positive open on Wall Street following yesterday’s cautious trading.

In commodities, WTI crude price is falling for the second consecutive day, set to close below the $70.00 level. Gold continues its consolidation phase within the $1,830 – 1,797 region.

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