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US dollar retreats amid growth concerns

 

Thursday, June 23, 2022

The news shaping the markets today

Leaders from the G7 (Group of Seven) economies and the NATO alliance said they would increase pressure on Russia over its ongoing attack on Ukraine. WTI crude oil futures traded lower after the news.


Japan’s au Jibun Bank manufacturing PMI fell to 52.7 in May, from a final reading of 53.3 in the previous month, exerting some pressure on the Nikkei 225 index this morning.


Australia’s services PMI declined to 52.6 in June, versus a reading of 53.2 in the previous month, sending the AUD/USD pair lower in forex trading this morning.


South Korea’s producer prices increased 9.7% year-over-year in May, unchanged from the prior month. This being the highest producer inflation since October 2008 exerted pressure on the KRW/USD forex pair.


Argentina’s trade surplus shrank to $356 million in May, from $1672 million in the year-ago month, sending the ARS/USD pair slightly lower in forex trading this morning.

 

What’s happening: The US dollar eased on Wednesday as Treasury yields fell amid growth concerns.

What happened: The greenback had maintained an upward trajectory through the first half of the month, reaching a 20-year high last week.

However, the safe-haven US dollar retreated on Wednesday, following comments from Federal Reserve Chairman Jerome Powell.

Why it matters: Currencies are typically boosted by any rise in interest rates in the respective country. The US dollar was similarly supported by the Federal Reserve’s move to boost the funds rate by 75bps to 1.5%-1.75% at its June meeting, versus expectations of a 50bps hike.

However, markets have grown concerned around the aggressive rate hikes to combat surging inflation increasing the risk of recession. During his testimony before the US Senate Banking Committee, Federal Reserve Chairman Jerome Powell said that the central bank was not looking to engineer a recession to control inflation but remains fully committed to bringing surging prices under control, despite the risks related to an economic slowdown.

While the US dollar retreated after these comments, the EUR/USD recorded gains with ECB policymakers looking to increase interest rates.

The JPY/USD forex pair dipped to a new 24-year low, with the increasing gap between rising bond yields in the US and Japan’s low rates.

Recently released data showed that consumer price inflation in the UK surging to a 40-year high of 9.1% in May and annual inflation in Canada accelerating to 7.7%, the highest level since January 1983.

The GBP/USD forex pair fell around 1% to a one-week low but pared most of the losses by the end of the trading day. The Canadian dollar recorded gains versus the US dollar.

What to watch: Traders will keep an eye on the second day of testimony from the Fed chief. The release of economic data on initial jobless claims, current account, manufacturing and services PMI will also remain in focus today. The number of people filing new claims for jobless benefits had declined by 3,000 to 229,000 in the week ended June 11 and is expected to decline further to 227,000 in the latest week. The S&P Global manufacturing PMI is projected to decline to 56 in June, from 57 in May, while the services PMI is expected to improve slightly to 53.5 in June, from 53.4 in May.

The markets today

Crude oil will be in focus today ahead of the EIA’s (Energy Information Administration) data on oil inventories

Context: Oil futures settled sharply lower on Wednesday, as traders remained concerned about easing demand amid recessionary pressures.

Details: Traders refocused on the prospects of a recession in the US, the world’s largest consumer of energy products, sending the US crude oil benchmark to its lowest level in around six weeks on Wednesday.

US President Joe Biden called on the Congress to temporarily suspend federal gas tax to provide some relief from surging pump prices.

Meanwhile, Russia indicated that it is operating close to the pre-covid levels, with increased outflows to China and India.

WTI crude for August declined $3.33, or 3%, to close at $106.19 per barrel on the NYMEX, after hitting a low of $101.53 earlier in the session. US crude prices recorded their weakest settlement since May 12.

August Brent crude shed $2.91, or 2.5%, to close at $111.74 per barrel on ICE Futures Europe, also notching the lowest finish since May 18.

In other energy trading, July gasoline gained 1% to $3.8341 a gallon, while July natural gas futures added 0.7% to reach $6.858 per million British thermal units on Wednesday.

What to watch: Traders await the release of data on crude oil inventories and natural gas stockpiles from the EIA today. US crude oil inventories, which grew by 1.956 million barrels in the week ended June 10, are expected to decline by 0.569 million barrels in the latest week. Analysts expect working gas held in storage facilities in the US to rise by 65 billion cubic feet in the latest week, compared to a 92 billion increase in the prior week.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.88%, 1.11%, 0.81% and 0.70%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 135.64 and 135.91 Negative
GBP/USD – 1.2230 and 1.2240 Positive
Gold – 1834.05 and 1835.45 Positive
WTI Crude Oil – 102.21 and 103.07 Positive
S&P 500 – 3777.05 and 3799.18 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0576, 0.07%) Dow ($30,420, -0.17%) Brent ($106.21, -2.3%)
GBP/USD (1.2258, -0.03%) S&P500 ($3,756, -0.19%) WTI ($103.58, -2.5%)
USD/JPY (135.26, -0.72%) Nasdaq ($11,544, -0.18%) Gold ($1,836, -0.2%)

What else to watch today

Saudi Arabia’s balance of trade, UK’s public sector net borrowing, CBI distributive trades survey’s retail sales balance, manufacturing PMI, services PMI and composite PMI, France’s manufacturing climate indicator, manufacturing climate indicator, manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, Indonesia’s loan growth and Bank of Indonesia’s interest rate decision, Eurozone’s manufacturing PMI, services PMI, composite PMI, European Council meeting and ECB’s General Council meeting, Mexico’s central bank interest rate decision, consumer prices and retail sales, Turkey’s foreign exchange reserves and Central Bank of Turkey’s interest rate decision, Canada’s manufacturing sales and wholesale sales, US Kansas City Fed’s manufacturing production index, Argentina’s leading economic index, GDP growth rate and unemployment rate.


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