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Dollar holding up into FOMC

Overnight Headlines

*USD steady near recent highs, after second week of gains

*US equities hit new records, all closing in the green

*Bitcoin jumps on unverified reports Amazon will accept it later in 2021

*German IFO business survey today’s main release, FOMC meeting Wednesday

USD notched a second week of gains after a volatile few sessions, rising 0.1% last week. EUR/USD continued to digest the dovish stance from the ECB’s meeting, closing largely unchanged at 1.1771. GBP is trading above the 200-day SMA but is drifting lower after worse-than-expected July PMI data. USD/JPY saw losses persist as the better risk mood hurt JPY.

US equities have rebounded strongly since the start of last week. The S&P500 has risen 4% during the past three trading sessions following strong corporate earnings. 87% of companies have so far beaten analyst estimates in their Q2 results. All eyes are on big Tech this week as Tesla, Apple, Google, Facebook and Amazon report. Asian markets are mixed while futures point to a lower opening.

Market Thoughts – Fed tops the bill

No significant changes are forecast at the FOMC meeting on Wednesday. Above-trend growth and inflation are expected to keep Chair Powell and the FOMC mildly optimistic, though he reaffirmed the transitory nature recently. The Delta variant is worrying many and the labour market has still not fully recovered. There are no updated projections or “dot plot” at this interim meeting and the dollar should stay gently bid.

We get a first look at Q2 US GDP on Thursday which is expected at 8-9% q/q plus readings for the PCE deflator on Friday which is the Fed’s preferred measure of inflation. There’s a bunch of eurozone data too with Q2 GDP and the flash July CPI release. The region should exit its technical recession as the Delta variant hits confidence going forward.

Chart of the Day – DXY hovering near highs

Two-way views on the FOMC – cautious Delta-constrained Fed v more bullish taper talk – means the dollar may be volatile midweek. Prices are treading water just below the recent highs at 93.19. The March year-to-date high at 93.43 is the main target for bulls. November highs at 94.28/30 lie above. Thursday’s spike low at 92.50 offers support but that bullish pin bar candle does point to dip buyers stepping in.  

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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