Calmer markets to start week, stocks higher, dollar lower
Last week was painful for markets following the Fed’s surprise hawkish stance. Investors speculated that the Fed might ruin the risk-on, reflation trade narrative, well-entrenched since November. Last night, Asian stocks were hit hard, the Japanese Nikkei down 4% at one point, but European stocks showed resilience and edged higher, which helped fuel the positive opening in US stocks this morning. US 30-year Treasury yields dropped briefly below 2.00% last night, but are currently at 2.05%. The dollar is broadly lower, as traders are being squeezed out of long-held short dollar positions.
Monday: US Chicago National Activity Index
Tuesday: US Existing Home Sales, Japan PMI
Wednesday: US Current Account Balance, Manufacturing PMI, New Home Sales, Canada Retail Sales, Eurozone Manufacturing PMI
Thursday: US Durable Goods Orders, Q1 GDP final revision, Bank of England monetary policy decision
Friday: US Personal Income, Personal Spending, PCE Deflator
June 21, 2021
EUR/USD 1.1901 GBP/USD 1.3885 USD/CAD 1.2403 AUD/USD 0.7511 USD/JPY 110.27 USD/CNH 6.4694 USD/ILS 3.2688 USD/MXN 20.6278 USD/CHF 0.9204 USD/INR 74.1050 USD/BRL 5.0490 USD/SGD 1.3454 USD/DKK 6.2493 USD/SEK 8.5697 USD/NOK 8.6280
Following the Fed’s surprise hawkish statements last Wednesday, the dollar did an about-face from its two-month old bearish trend, and showed its strongest weekly performance since March 2020. The reflation trade narrative, well-entrenched since last November, is being put to the test. This week, several Fed officials will speak, and might talk back the hawkish tilt to calm markets.GBPAfter an initial sell-off in the pound in Asian trading, which took the GBP/USD briefly below $1.38, there has been a healthy rally near $1.39 amid the broadly weaker dollar. Traders await the Bank of England meeting on Thursday – no change is expected to its 0.10% benchmark rate.EUR
The euro is slightly higher from Friday’s close on the back of broad dollar weakness. The euro fell 2% following the Fed’s hawkish comments last Wednesday, and has reached the $1.18-$1.19 range, identified by market technicians as a strong support area. Traders await Eurozone PMI data for June to be released on Wednesday.CAD
The Canadian dollar gained over 0.50% since Friday on the back of a broadly weaker US dollar, and as oil and stocks are firmer this morning. Traders are also focused on the potential negative impact on the decision of Canada’s government to extend a ban on nonessential travel until July 21.ASIA/PACIFIC
The Japanese yen moved little over the weekend despite the broad bearish move on the dollar. Traders await a full week of Japanese economic data.
The Chinese yuan fell slightly, but the decline was in line with the broad sell-off in emerging markets currencies following the Fed’s hawkish tilt. Traders were seen unwinding emerging market assets as the risk-on reflation trade narrative gets tested.
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