US Open Note – Stock indices to claim monthly gains despite jitters; dollar on the backfoot

Stock indices head for a monthly gain

The month of July started with the impression that plans of monetary tightening could get more into fashion, adding a solid footing under currencies, while the earnings season could further brighten the outlook for stocks despite the inflaming virus numbers.

Although the above backdrop has not entirely faded yet, the last week of the month found investors having second thoughts about how soon the Fed would wrap up its bond tapering plans as pandemic-related jitters resurfaced to weigh on growth prospects. Earnings releases enhanced this skepticism, signaling that the impressive performance during the pandemic could be a story of the past, with China’s regulatory crackdown causing another headache to businesses.

Despite the choppy trading, the pan-European STOXX 600 is set for its sixth consecutive monthly gain, somewhat balancing the cautious guidance reported by British and French airlines today. In the US, the S&P 500, Nasdaq 100 and Dow Jones opened slightly lower but are on course to mark the longest winning streak since 2013.

Fed awakes dollar bears; core PCE inflation softer than expected

In the FX space, the US dollar resumed its correlation with Treasury yields and is heading for a negative monthly close against a basket of major currencies thanks to the Fed’s careful approach over tapering actions and the negative implications the delta covid variant could cause.

A softer-than-expected core PCE price index, which clocked in at 3.5% y/y versus the forecast of 3.7%, was offset by an upside surprise in personal income and consumption measures today, letting dollar/yen to climb as high as 109.78. On the other hand, dollar/franc remained stable at 0.9063.

Euro, pound extend bull run

Nevertheless, the recent weakness in the greenback was a blessing for the euro, which otherwise would not have been able to claim any gains as unlike the Fed, the ECB is not planning to abandon its super accommodative policy anytime soon. The muted reaction to July’s upbeat flash CPI inflation and Q2 GDP growth figures out of the Eurozone today mirrored the ECB’s headwinds. The next obstacle for euro/dollar is the 1.1900 level.

Likewise, pound/dollar stretched its bull run above the 50-day simple moving average to peak at a fresh one-month high of 1.3982 ahead of the Bank of England’s policy announcement next Thursday.

Aussie one of the weakest

The Reserve Bank of Australia will meet early on Tuesday, though given the worsening virus conditions in Australia and Asia and the new lockdown restrictions in some regions, the Bank could play down the potential of monetary tightening. Perhaps, this is what is keeping aussie/dollar below the 0.7400 resistance territory, making it one of the worst performing pairs of the day along with other commodity-dependent currencies.

Canadian GDP growth could strengthen in June

Meanwhile in Canada, May’s GDP growth came in line with expectations at -0.3% m/m, while April’s negative revision to -0.5% was shrugged off after Statistics Canada provided a positive flash estimate of 0.7% for June and an annualized expansion of 2.5% in Q2. Dollar/loonie ticked lower to retest intra-day lows following the release.


In commodities, gold is still stuck around the $1,830 resistance and the 50-day SMA after Thursday’s quick bounce. WTI oil price, although a bit weaker at $72.53/bpd today, is in the second week of gains, having almost recovered its monthly losses.

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.