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US dollar hits 20-year high amid rising oil prices

 

Thursday, July 07, 2022

The news shaping the markets today

Russia has stepped up its offensive in the eastern Donetsk province of Ukraine, killing 5 civilians and leaving 21 wounded. The RUB/USD forex pair traded slightly lower after the news.


Australia’s trade surplus widened to a record high of A$15.97 billion in May, from A$13.25 billion in the earlier month. The latest reading surpassed market expectations of A$10.73 billion, lending support to the AUD/USD forex pair.


South Korea recorded a current account surplus of $3.86 billion in May, compared to April’s deficit of $0.08 billion, which sent the KRW/USD pair higher in forex trading this morning.


The American Petroleum Institute reported that US crude stockpiles grew by 3.825 million barrels in the week ended July 1, versus market estimates of a decline of 1.100 million barrels. The WTI crude oil prices traded slightly higher this morning.


The Philippines reported 8.9% year-over-year growth in its manufacturing production in May, following 7.6% growth in the previous month. Despite this being the 14th consecutive month of expansion in manufacturing output, the PHP/USD forex pair remained under pressure.

 

What’s happening: The US dollar surged to a new 20-year high on Wednesday, with investors looking for safe-haven options.

What happened: The US Federal Reserve has been hiking its benchmark interest rates more aggressively than other major central banks, resulting in the strengthening of the US dollar.

The EUR/USD forex pair tumbled below the 1.0200 mark amid concerns over rising energy prices.

Why it matters: Traders continued to favour the US dollar, which has a reserve currency status. Investors have been adding more of the safe-haven greenback to their portfolios amid growing concerns around the global economy.

The Federal Reserve raised the funds’ rate by 75bps to 1.5%-1.75% at its June meeting, higher than the 50bps projection. Fed minutes released on Wednesday indicated that another rate hike of 50 or 75 bps is likely at the central bank’s July meeting. Meanwhile, the European Central Bank has kept rates unchanged for now, although it is widely expected to raise rates this month.

Upbeat economic data also drove market sentiment. Although the ISM non-manufacturing PMI for the US fell to 55.3 in June, from 55.9 in May, it still signalled expansion in the sector. The figure also came in better than the consensus estimate of 54.3, highlighting the strength of the country’s economy.

Traders also assessed the JOLT’s job openings data for May, which showed the number of job openings in the country falling to 11.25 million in May, from 11.68 million in April. Despite the decline, the latest figure surpassed expectations of 11 million job openings. The S&P Global services PMI was also revised higher to 52.7 for June, compared to a preliminary reading of 51.6.

The US dollar index, which measured the greenback’s performance versus a basket of six major currencies, climbed above 107 on Wednesday, for the first time since December 2002.

The EUR/USD forex pair fell below 1.02 as energy prices climbed higher. Goldman Sachs also raised its projections for natural gas prices.

What to watch: Traders await the release of economic reports on ADP employment, jobless claims and balance of trade, due to be released today. Private businesses in the US, which hired 128,000 workers in May, are expected to hire 200,000 workers in June. Analysts expect initial jobless claims to decline to 230,000 in the latest week, from 231,000 in the week ended June 25. The trade deficit in the US, which narrowed to a four-month low of $87.1 billion in April, is expected to shrink to $84.9 billion in May.

The markets today

Asia-Pacific markets will be in focus today after closing mostly lower on Wednesday

Context: Asia-Pacific equities came under slight pressure on Wednesday, amid mixed cues from Wall Street in the previous trading session.

Details: Markets in the Asia-Pacific region had settled mostly higher on Tuesday but were unable to build on gains on Wednesday amid weakness in energy stocks.

Rising covid-19 cases in China also impacted overall market sentiment, fanning fears of potential lockdowns in the country. The Shanghai Composite index shed 1.43% to settle at 3,355.35 on Wednesday.

Australia’s stock market closed lower on Wednesday, giving up some of the gains in the previous two sessions, with a decline in energy, gold mining and materials stocks. The benchmark S&P/ASX 200 declined below the 6,600 level, and settled lower by 0.5% at 6,594.50 on Wednesday.

Japanese stocks closed sharply lower, erasing gains from the prior session. The Nikkei 225 fell below 26,100 during the session. However, the index closed lower by 1.2% at 26,107.65.

Indian markets bucked the overall market trend. The S&P BSE Sensex settling higher by 1.16% at 53,750.97 on Wednesday. Investors sentiment in India was supported by June data showing the highest growth in the country’s services activity since April 2011.

What to watch: Traders await economic data on Japan’s leading economic index and coincident index and China’s foreign exchange reserves report, both due today.

Other Markets: US indices closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.23%, 0.36% and 0.62%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 1.0186 and 1.0195 Positive
AUD/USD – 0.6790 and 0.6808 Positive
Dow Jones – 30941.15 and 31176.71 Positive
Nikkei 225 – 26246.16 and 26343.16 Positive
WTI Crude Oil – 97.21 and 97.68 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0208, 0.24%) Dow ($31,048, 0.11%) Brent ($100.86, 0.2%)
GBP/USD (1.1952, 0.22%) S&P500 ($3,853, 0.11%) WTI ($98.77, 0.2%)
USD/JPY (135.75, -0.13%) Nasdaq ($11,898, 0.15%) Gold ($1,745, 0.5%)

What else to watch today

Germany’s industrial production, South Africa’s foreign exchange reserves, UK’s Halifax house price index and labour productivity, France’s foreign exchange reserves, China’s foreign exchange reserves, Mexico’s consumer price index, car production, auto exports and monetary policy meeting minutes, ECB’s monetary policy meeting accounts, Turkey’s gross foreign exchange reserves and treasury cash balance, US Challenger job cuts, natural gas stocks, crude oil inventories, gasoline stocks, and heating oil stocks, Canada’s balance of trade, exports, imports and Ivey Purchasing Managers Index, Russia’s foreign exchange reserves, as well as Argentina’s industrial production.


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