The US dollar had a challenging week, experiencing its worst weekly drop of the year. Traders are cautious and waiting for economic data and policy decisions before further selling the dollar. The euro and yen both showed strength last week and are holding near their recent highs. Chinese growth data met low expectations, causing minimal market response, as traders anticipate potential government stimulus.
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Australian and New Zealand dollars retreated slightly after recent gains. The market expects rate hikes from the Federal Reserve and European Central Bank next week, but after that, the Fed is projected to pause before possible cuts next year.
Asian stocks declined due to weak data from China and concerns about Fed monetary tightening. Yields on Australian bonds steadied, and the Australian dollar weakened in response to China's economic outlook.
Key Events This Week: Forex Day Trading
- G-20 finance ministers and central bankers meeting in India on Monday
- European Central Bank President Christine Lagarde speaks on Monday
- Various economic data releases, including US retail sales, industrial production, business inventories, cross-border investment, Eurozone and UK CPI, US housing starts, China loan prime rates, and US initial jobless claims
Major Currency Moves:
- Euro: Holding just below its recent peak at $1.1223, after gaining 2.4% last week to a 16-month high.
- Japanese Yen: Holding strong at 138.56 per dollar, up 2.4% last week.
- Australian Dollar: Pulled back slightly to $0.6821, off last week's peak of $0.6895.
- New Zealand Dollar: Down 0.2% at $0.6355 after reaching a five-month high of $0.6412 last Friday.
US Dollar Index:
- The US dollar index dropped 2.2% last week, its sharpest one-week fall since November, but steadied at 99.936 in the Asian session.
Forex Market Outlook:
- The dollar may remain on the backfoot as traders anticipate a less hawkish Fed.
- Some strategists and investors suggest the long bull run for the dollar might be over.
- Market uncertainty remains high, and volatility is expected to remain elevated in the near term.
Important Notes:
- The Bank of Japan's policy meeting next week will be closely monitored for any shifts.
- Swaps pricing indicates expectations of a 25 basis point rate hike by the Fed this month, with a one-third chance of another move before pausing.
- Cautious tones from the Fed and uncertainties about inflation and economic recovery are influencing market sentiment.
Major Market Moves (As of 02:21 p.m. Tokyo time):
- Stocks: S&P 500 and Nasdaq 100 futures were little changed; South Korea's Kospi Index fell 0.3%; China's Shanghai Composite Index fell 1.1%; Australia's S&P/ASX 200 Index was little changed.
- Currencies: The Bloomberg Dollar Spot Index was unchanged; the euro remained at $1.1228; the Japanese yen rose to 138.63 per dollar; the offshore yuan fell to 7.1703 per dollar; the Australian dollar fell to $0.6815.
- Cryptocurrencies: Bitcoin was unchanged at $30,291.85; Ether was unchanged at $1,928.4.
- Bonds: Australia's 10-year yield declined two basis points to 3.98%.
- Commodities: West Texas Intermediate crude fell 0.9% to $74.77 a barrel; spot gold fell 0.1% to $1,952.78 an ounce.
Please note that this analysis is based on the information available on July 17, 2023, and market conditions may change rapidly. Traders should conduct their own research and analysis before making any trading decisions.
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