The dollar index (DXY00) on Monday fell by -0.01%. The dollar erased early gains on Monday and posted modest losses on negative carryover from last Friday’s weaker-than-expected US June payroll report, which reduced the chances of the Fed tightening monetary policy, a negative factor for the dollar.
The dollar initially moved higher on Monday following the as-expected June ISM services index report. The dollar also found support amid yen weakness after Japanese authorities failed to intervene in the forex market to support the yen while US markets were closed last Friday for a holiday, a previous prime time for Japan’s intervention.
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The US Jun ISM services index fell -0.5 to 54.0, right on expectations. The Jun ISM services price-paid sub-index eased to 67.7 from 71.3 in May, stronger than the 67.5 expected.
The swaps markets are discounting the odds at 25% for a +25 bp rate hike at the next FOMC meeting on July 28-29.
EUR/USD (^EURUSD) on Monday rose by +0.04%. The euro recovered from early losses on Monday and posted modest gains after the dollar gave up an early advance and moved lower. The euro also garnered support after the Eurozone July Sentix investor confidence index rose more than expected to a 4-month high and German May factory orders rose more than expected. Gains in the euro were contained due to Monday’s weaker-than-expected Eurozone May retail sales report.
Eurozone May retail sales rose +0.2% m/m, weaker than expectations of +0.3% m/m.
The Eurozone July Sentix investor confidence index rose by 10.3 to a 4-month high of -3.1, beating expectations of -10.0.
German May factory orders rose +1.9% m/m, stronger than expectations of +1.1% m/m.
The markets are discounting a +3% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.
USD/JPY (^USDJPY) on Monday rose by +0.47%. The yen retreated on Monday after Japanese authorities failed to intervene in the forex market in support of the yen while US markets last Friday were closed for a holiday, a favorite time for intervention by Japan. The yen moved lower despite a jump in Japanese government bond yields, as the 10-year JGB yield soared to a 29-year high of 2.841% on Monday, which strengthened the yen’s interest rate differentials.
The risk of intervention in currency markets to support the yen is high, as the yen remains firmly above 160 per dollar at a 39-year low. Japanese authorities have intervened in the forex market several times in the past when the yen reached that level.
The markets are discounting a +1% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.
August COMEX gold (GCQ26) on Monday closed up +41.80 (+1.01%), and September COMEX silver (SIU26) closed up +1.266 (+2.07%).
Gold and silver prices rallied sharply on Monday, posting 1.5-week highs. Precious metals have carryover support from last Thursday when the weaker-than-expected US June payrolls report reduced the chances of the Fed tightening monetary policy. Also, Monday’s weaker crude oil prices have lowered inflation expectations and may prompt central banks worldwide to ease monetary policy, a bullish factor for precious metals. In addition, the dollar on Monday gave up an early advance and turned lower, a supportive factor for precious metals.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9.5-month low last Friday, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 11.25-month low last Tuesday from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC boosted its gold reserves.
On the date of publication,
Rich Asplund
did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
For more information please view the Barchart Disclosure Policy
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