Despite USD’s stabilisation in the past few sessions, it’s about to end the week lower against a number of its counterparts.
The strengthening of the USD, due to the Fed’s hawkish shift, seems to have stopped, at least for now and the market seems puzzled.
It’s characteristic that on the monetary front, Fed policymakers seem split about the bank’s priorities, given that some, like Dallas Fed President Kaplan, tend to highlight the risk of inflationary pressures, while others including NY Fed President Williams note that a high number of jobs has still to be revived.
Thus, high focus is placed on both ends inflation and the employment market, increasing the importance of the release of the US employment report for June on Friday.
As for other financial releases USD traders are not to remain idle as on Tuesday we get the US consumer Confidence for June, on Wednesday we get the ADP National employment figure for June and on Thursday we highlight the weekly initial jobless claims figure as well as the ISM manufacturing PMI reading for the same month.
As we mentioned the highlight though of financial releases is expected to be the US employment report for June on Friday with its NFP figure.
As for the greenback’s fundamentals, we note the bipartisan support for the new US infrastructure plan of $579 billion which tended to support the US stockmarkets as it would include investments in the power grid, broadband internet services and passenger and freight rail.
Should the fiscal stimulus be passed into law, especially should it be increased by the reconciliation procedure to $1.2 trillion, it could accelerate the recovery of the US economy and thus provide some support for the USD.
We can also see the technical part of the analysis, the price of USDX is in a good rally followed by a weaker pullback, giving hope for the buyers for the 2nd bullish leg towards 93 – 93.50 levels.
Long-term perspectives, in my opinion, tend for stable to strong USD. Breakthrough above 93.50 levels going to be a strong alert even to the conservative traders.
Well, yes, as you can see, my bias is more bullish than weak green money. But on the other side of the river, there is a scenario that can prove us wrong and that’s the bearish scenario for the USD.
I will cut it short. The fundamentals may sound bullish nowadays for the USD, but the facts vs talks are still on the downside for the world reserve currency.
FED doesn’t want to go for “tapering”. $120B are still going to be there every month to stimulate the economic recovery. Well, that’s cool, but what about the inflation factor?
The first step is already there – rake hike talks. That’s basically enough to stabilize the greenback for the short-term at least. Which is good sign for buying the dips and keep adding longs with defensive trade management strategy.