It is mentioned in the article last month that the fundamentals of the US economy maintained a good momentum, but the technical trend fell below the previous support level that bottomed out more than 100.50 times, which may trigger a wave of decline. However, it started a big rebound after the US dollar fell to around 99.30, once rising to 103.60 and non-US currencies fell across the board. In recent months, the foreign exchange market has basically not been affected by special new. The overall situation is still driven by economic data, inflation and the monetary policy attitude of the central bank. As I said before, the fundamentals of the United States are still dominant. Although the performance of the labor market has slowed down, it has not weakened significantly. On the contrary, wage growth has remained strong and the consumer market has been buoyant. This can be seen from the fact that retail sales in July rose by 0.7% month-on-month. As a result, inflation may only fall slowly. More importantly, the Fed seems to be more optimistic about the economic outlook than before, and it is less likely to mention the risk of recession, but worried that the economy will accelerate again. From the latest meeting minutes, it can be seen that the monetary policy stance of many officials in the bureau shows signs of being hawkish. All of the above lead to a positive effect on the US dollar, coupled with the lack of new hype factors in the market, and the lack of good news in other economies, the US dollar has continued to rise after returning to 101. 

The current US 10-year treasury bond yield has risen to 4.3%, the highest level since 2007. Although the market thinks that the chance of the Fed continuing to stay on hold in September is close to 90%. However, the probability of not raising interest rates in the last two meetings before the end of the year is only slightly more than half. The Fed and the market still have to make judgments based on subsequent economic and inflation data. Fundamentals support the US dollar to do well, while the technical trend returns to a neutral and slightly preferred pattern. It should be noted that the resistance line connecting the two highs of US dollar index this year, 105.87 and 104.60, is just around 103.50. In the short term, small bets can be used to go short, and once a breakthrough must be made, the loss must be stopped first. If it rises above 104.60 again and destroys the wave-to-wave pattern, the future trend of US dollar may change significantly. In late August, Federal Reserve Chairman Powell will speak at the annual meeting of global central banks. Whether monetary policy will be mentioned, whether the speech is hawk or dove, will affect the performance of the foreign exchange market, and it is worthy of attention.

Patrick Law

Chief Operating Officer of Hantec Group