Dollar Gains on Strength in US Services Activity

The dollar index (DXY00) today is up by +0.22%.  The dollar is moving higher today on the as-expected Jun ISM services index report.  The dollar also found support amid yen weakness after Japanese authorities failed to intervene in the forex market to support the yen while US markets were closed last Friday for a holiday, a previous prime time for Japan’s intervention. 

The US Jun ISM services index fell -0.5 to 54.0, right on expectations.  The Jun ISM services price-paid sub-index eased to 67.7 from 71.3 in May, stronger than the 67.5 expected.

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The swaps markets are discounting the odds at 24% for a +25 bp rate hike at the next FOMC meeting on July 28-29.

EUR/USD (^EURUSD) today is down by -0.17%.  The euro is under pressure today from a stronger dollar. Also, today’s weaker-than-expected Eurozone May retail sales report is bearish for the euro.  Losses in the euro are limited after the Eurozone July Sentix investor confidence index rose more than expected to a 4-month high. 

Eurozone May retail sales rose +0.2% m/m, weaker than expectations of +0.3% m/m.

The Eurozone July Sentix investor confidence index rose by 10.3 to a 4-month high of -3.1, beating expectations of -10.0.

German May factory orders rose +1.9% m/m, stronger than expectations of +1.1% m/m.

The markets are discounting a +3% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.

USD/JPY (^USDJPY) today is up by +0.60%.  The yen is falling today after Japanese authorities failed to intervene in the forex market in support of the yen while US markets last Friday were closed for a holiday, a favorite time for intervention by Japan.  The yen is retreating despite a jump in Japanese government bond yields, as the 10-year JGB yield soared to a 29-year high of 2.841% today, which strengthens the yen’s interest rate differentials. 

The risk of intervention in currency markets to support the yen is high, as the yen remains firmly above 160 per dollar at a 39-year low.  Japanese authorities have intervened in the forex market several times in the past when the yen reached that level. 

The markets are discounting a +1% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.

August COMEX gold (GCQ26) today is up +25.00 (+0.61%), and September COMEX silver (SIU26) is up +1.106 (+1.81%).

Gold and silver prices are pushing higher today and posted 1.5-week highs.  Precious metals have carryover support from last Thursday when the weaker-than-expected US June payrolls report reduced the chances of the Fed tightening monetary policy.  Also, today’s weaker crude oil prices have lowered inflation expectations and may prompt central banks worldwide to ease monetary policy, a bullish factor for precious metals.  Today’s stronger dollar is limiting gains in metals.

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9.5-month low last Friday, after reaching a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to an 11.25-month low last Tuesday from the 3.5-year high posted on December 23.

Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC boosted its gold reserves.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com