Mkt Digest July 3: The end of bad days for Dollar may be elusive

3 de jul. de 2017

Hey guys,

Its' been raining all the day so put your likes on this to save me from melancholy ;)

So today we got a manufacturing PMI in the euro area signaling a rise to the highest since 2011, as European factories increase the demand for labor to absorb the growing number of orders. The index of purchasing managers from IHS Markit rose to 57.4 points in June against 57.0 in May, with the economic recovery affecting almost all regions, from Germany to stagnating Greece. And in the latter, positive dynamics are observed for the first time since August of last year, convincingly proving the region-wide character of economic expansion.

A positive report is a brick in the foundation on which investors base their long positions on the euro. After fairly bullish comments by the ECB President Mario Draghi at the ECB's forum last week, the consumer price inflation figures which outstripped estimates allowed for euro upsurge. The growing demand for labor continues to drive unemployment into a corner that has fallen to an 8-year low. And the growth in sales of retailers in Germany reached 4.8% in May compared to the same period last year.

The FOREX market draws a rather deceptive picture of the euro. The common currency declined against its main opponent, the US dollar, by half a percent on Monday, thanks to the comments of Fed Chairman Yellen predicting no crisis for the US near future. Now EURUSD will see a "fight of bullish sentiments," but given the two increases this year and the difficulties in the domestic political arena, the Fed mood may deteriorate much more likely than the ECB. Comparing the "stability" of rhetoric in both Central Banks, we tend to believe that the European economy has a little more potential for exploits, allowing the ECB's optimism to be more resilient. 

Now regarding the greenback. On Friday, we saw a stable Core PCE at 1.4%, with a forecast of 1.4%. Household income accelerated growth, while real spending slowed, indicating a slight slowdown in consumption. However, such a conclusion was leveled with the confidence index from the University of Michigan, which turned out to be slightly higher than the forecasts. With the current rhetoric of the Fed, the absence of negative deviations from the forecasts will be enough to expect a third rate hike this year.

Data helped the dollar to rebound, but from a technical point of view, the correction from a 9-month low seems logical. And the dollar almost equally grew against the major currencies of opponents, which further indicates this movement as the closure of profitable shorts. The celebration of the Independence Day in the US may also have its market effect, with the early closing of trading. The yield of US and European bonds suspended growth, after an impressive selloff of bonds last week.

Oil prices are stable after last week's growth, as the reduced number of drilling rigs in the US did not allow the negative to penetrate the market, OPEC continues to look for ways-exits how to curb the output of countries outside the agreement, such as Libya and Nigeria.