Dollar Continues to Climb Higher and Markets Turn Bullish Before The Bell

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The dollar is still broadly in a positive mood. The narrow DXY dollar-index, which is trade-weighted, has surpassed a two-day high at 91.71 and returned attention to recent three-month-highs of 92.82-85. Yesterday, the dollar rose from a two day low of 92.27. The sputtering tone of equity markets — despite strong corporate earnings reports — and the renewed pledges of Fed Chair Powell to continue ultra-accommodative policy helped drum up demand for safe-haven currencies.

As the European morning session continues, sentiment improves a bit. U.S. equity futures are tracking modest gains in European stock exchanges. The oil prices are also rising from the lows. They were at their lowest nearly 6% lower than the highs of Monday. The dollar The index is poised to post its best weekly gains in four weeks. The 10-year U.S. Treasury rate rose over 3 bp, from a low of 1.30%.

Despite Fed Chair Powell’s inflation-is-transitory, tapering-remains-distant signaling, investors have been vacillating between optimism based on vaccination success and ongoing stimulus, against the rapid Delta-variant driven global spread of new Covid cases, which is even threatening new restrictions being taken in Europe despite the advancing vaccination rate there.

Yesterday, bond bulls were in charge as yields continued to fall after Fed Chair Powell’s second day of testimony did not require any course correction. The ongoing curve-flattening trades have helped lower rates to levels last seen in February. The 10-year yield and the 30-year yield both fell more than 5 bps, to intraday lows of 1,297% and 1,9199% respectively.

Momentum and technicals boosted the move. Wall Street lost less, but overall it was weaker. Big tech weighed heavily on the NASDAQ, which fell over -1 % before recovering to finish only 0.12% in red. The S&P 500 was off -0.14% and the Dow was down -0.11%. Powell said that the increase in prices was due to bottlenecks or reopenings. He also assured that if inflation continues to be persistently strong, the Fed would take action. The data was mixed with an Empire State Index record, stronger than expected trade prices and jobless claims, as well as slightly disappointing industrial output.

On the calendar today, June retail sales is expected to decline -0.8% in total from the previous result of -1.3% and flat from a previous -0.7% ex-auto. The May business inventory is expected to increase 0.6% from the -0.2% recorded in April. The preliminary University of Michigan consumer confidence index for July is expected to increase from 85.5 points in June to 86.0. Also on the agenda is May TIC flows data.

The Earnings Calendar includes reports from HDFC Bank and Schwab as well as State Street and Kansas City Southern.

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