US Open Note – Markets recoup and dollar stays upbeat



Markets retain buoyancy as forex arena looks to ECB decision

The domino effect from the latest delta variant shock around infection spikes seems to have been short lived as US major indices today continued to recoup recently surrendered ground. Concerns after the initial jolt to markets around the virus rhetoric seem to have subsided somewhat. The US dollar index seems cemented around its recent highs and the pickup in the 10-year yield to 1.24% may be aiding the reserve currency against the inverse correlation of recovering risk appetite in markets. The USD/JPY pair has also prodded a tad above the 110.00 border as markets recover.

The euro and the pound are retaining their bearish tone as the resilience in the greenback persists, even as risk sentiment improves. The euro is heading back to its early Asian session low around $1.1750, while cable is consolidating around $1.3640.

EU and UK tensions are growing again on the Northern Ireland issue of border checks, while infections remain high after the full reopening of the UK economy. The forex arena appears to be somewhat preparing for tomorrow’s ECB meeting, even though a dovish message is expected. Investors will be on the lookout for comments around virus resurgence worries and connected asset purchases, surprise policy shifts from a dovish message, not to mention the inflation and growth outlook.

Oil creeps up and gold on the back foot

Antipodean currencies remain heavy with the aussie struggling to find its feet, showing more weakness than its kiwi neighbour. Australian retail sales decelerated in June even before the lockdowns, sliding by -1.8% versus the forecast of -0.7% m/m, fuelling additional sluggishness in the AUD/USD pair. AUD/USD has managed to hold above the 0.7300 barrier but renewed restrictions may further hamper the pair. Nonetheless, the dovish RBA has made it clear that they will remain flexible towards supporting their strong economy with regards to QE, should circumstances deem necessary for action.

WTI oil futures have nudged above the $68.00 per barrel mark, looking to regain some buoyancy but this may prove a difficult task to achieve as heightened worries of rising infections could further dampen global fuel demand. The sturdy greenback was slightly underperforming against the Canadian dollar with the USD/CAD pair retreating from five-month high areas to around C$1.2680, as the loonie benefited from oil ticking higher.

The 10-year Treasury yield improved to 1.24% and the new strength in the greenback is adding negative strain on gold, which is piercing below the $1,800/oz barrier.

Later on at 14:30 GMT US crude oil inventories are expected.

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