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US Open Note – Dollar set for positive monthly close despite weakness; stocks falter



Dollar falls to fresh lows, but outlook still promising

The US dollar was down across the board on Tuesday, retreating below its post-Jackson Hole low earlier in the day to trade at 92.36 against a basket of six major currencies as investors remained in the dark about when the Fed will officially kick off its bond tapering phase.

The outlook, however, is still promising for the greenback, which is set to close the month in the positive territory since the case of bond tapering has only been delayed in the year and not derailed. Moreover, the worsening supply chain problems in Asia could enhance supply constraints and therefore heighten inflation risks, which could consequently add more support under the dollar if, of course, the labor market marks the significant progress the Fed aims to achieve. Therefore, every dip in the dollar could still be bought and Friday’s nonfarm payrolls could still turn things around.

Euro extends recovery after stronger CPI figure

The euro managed to attract some buying interest on the back of a weaker dollar, surging above its 50-day simple moving average to reach a three-week high of 1.1844 against the dollar.Perhaps, higher-than-expected CPI figures out of the bloc and increasing discussions about a potential slowdown in the ECB’s  PEPP asset purchases at the end of the year, which saw more backing from ECB policymaker Robert Holzmann today, have further powered the bullish action.

Yet, with euro/dollar currently trading around a key resistance region, a downside correction or some consolidation cannot be excluded either.Likewise, pound/dollar is facing a tough battle within the 1.3780 – 1.3810 territory and in the absence of any teasers out of the UK, the dollar’s weakness should persist for the pair to breach that wall.

Canadian GDP growth misses expectations

Elsewhere, the annualized Canadian Q2 GDP growth figure missed expectations, showing a 1.1% contraction in the second quarter compared to a growth of 5.5% anticipated. The monthly reading for June, however, met analysts’ projections for a 0.7% expansion, leaving dollar/loonie steady around the 1.2588 key support area even as oil prices remained on the back foot today, with WTI oil experiencing the worst month since October.Of note, OPEC+ is expected to follow the script and move forward with plans to increase output by 400k bpd per month starting September.

Antipodeans best performers

In other commodity currencies, the antipodeans are the best performers so far in the day against the dollar and the yen despite the worsening covid conditions in Australia and the disappointing services PMI readings out of China. The upturn also emerged as New Zealand prepares to lift some of the latest pandemic restrictions.

European stocks in the red; Wall Street stable

Meanwhile in stock markets, although the negative surprise in China’s data brought some losses in Asia early on Tuesday, the downfall was quickly recouped as a growth slowdown implied more stimulus for businesses.

US indices managed to print new all-time highs on Monday, further stretching their unstoppable record rally as traders are confident that fiscal and monetary support could balance the negative risks of the pandemic. Wall Street opened neutral.

On the other hand, the pan-European STOXX 600 turned negative following the pickup in the German 10-year bond yield, which surged to a one-month high of -0.395% in the face of stronger-than-expected eurozone CPI data. Real estate, Financial and energy stocks drove the losses in the index.

 

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