US Open Note – Stocks gain some footing; coronavirus dejavu-jitters linger

Stocks adjust to delta trauma while dollar holds firm

Markets seem to be gradually regaining consciousness from yesterday’s risk-off blow even as yields are on the back foot. That said, the US recovery is clearly ahead of other lagging economies and may start to make headways again as uncertainty and delta variant related concerns start to establish themselves elsewhere.

The dollar index is flirting with the 93.00 mark and is holding up fairly well in the forex arena despite the 10-year yield lower at 1.15%. The reserve currency’s appeal in risk-off scenarios seems to hold and is assisting the greenback. It seems the Fed and other central banks may have to take into consideration the recently more upbeat tone around recoveries and possibly nearing taper talks, given yesterday’s developments and the uncertainty around stimulus due to infection surges and resilience of the delta strain of the virus.

US building permits decelerated in the month of June coming in at 1.60M however, a stronger number of new constructions of 1.64M versus the forecast of 1.59M, may suggest jobs and housing demand remains robust.

ECB and BoE

The ECB remains a dove and will stay accommodative during the recovery, making sure not to jeopardize the progress it has been making. That is why Thursday’s ECB meeting remains the highlight of the week, regarding stimulus for the Eurozone moving into the second half of the year. As the UK economy fully reopened, the Bank of England is torn between slightly higher inflation and premature tightening of monetary stimulus.

The UK reopened fully yesterday and infections continue to rise, which has shifted the UK into the highest travel advisory alert, hardly aiding the pound’s recent deteriorating picture.

The euro and the pound continue to hold bearish trajectories as the dollar remains resilient even as risk off sentiment begins to subside somewhat.  The euro’s $1.1800 level seems to be capping the common currency’s advances, while the pound is dipping closer to the $1.3600 handle. That said the euro holds an upper hand over the pound with the EUR/GBP pair currently reaching 0.8655.

Uncertainty Down under

The RBA rhetoric was somewhat dovish as uncertainty around growth of the economy was revived with recent virus outbreaks and lockdowns. Nonetheless, under the uncertain circumstances the RBA will remain more flexible towards the state of the economy at specific times rather than staying committed to a rate of asset purchases. The AUD/USD pair has touched the 0.7300 handle but remains directed for the 0.7250 low.

Oil and loonie injured

The nomadic delta variant, which continues to travel unscathed throughout the globe, has boosted worries that recoveries may adopt a sluggish pace, resulting in a slump in demand for oil. WTI futures are trading around the $66.00 per barrel mark, looking increasingly heavy, following OPEC’s agreed supply increase. On that note, the USD/CAD pair is relatively unchanged at C$1.2760, holding in the vicinity of its recently achieved highs. This may be due to the dollar’s retained buoyancy and a wounded Canadian dollar, resulting from oil’s recent delta-jolt.

Later in the evening at 23:50 GMT Japan’s minutes will be due, while at 01:30 GMT Australian retail sales m/m are scheduled to be released.

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