Risk recovers, ECB in focus

Overnight Headlines

*USD dropped for the first time in five sessions, closing 0.2% lower

*US equities rose for a second day, futures marginally positive

*Vix back below 18, oil jumps over 5%

USD pulled back from fresh four-month highs at 93.19 on the DXY, closing at 92.75. The broad recovery in risk assets dented demand for the dollar with EUR edging closer towards 1.18 while GBP pushed above 1.37 and its 200-day SMA. JPY tracked higher bond yields closing above 110 for the first time in a week.

US equities moved higher and ended in the green as a slew of strong earnings pushed back on virus concerns. The S&P500 has more or less erased the past week’s decline. The current earnings season has seen 85% of the S&P500 companies reporting so far beat analyst expectations. Asian markets are positive this morning with futures pointing to a solid open in Europe.

Market Thoughts – More dovish bias from the ECB?

The ECB meeting was expected to be a rather dull affair, but there may be implications and new communication on the back of the new strategic framework done by the bank recently. That said, no new policy signals are expected from the change in language.

Analysts forecast an acknowledgement of the improving data which has come in according to expectations and the positive contribution from the roll-out of the vaccines. However, risks will also be mentioned, notably the dominant Delta variant and the still uneven and fragile recovery.

With markets having to adjust to the new communication style and potentially also new dovish language due to the strategic review, there is a risk of larger than usual market moves. But such moves should not be over-interpreted, especially in a less liquid seasonal summer market.

Chart of the Day – EUR/USD holding up

EUR/USD has followed the dollar tone in the main over the last few sessions, though the EUR has been supported as a safe haven currency though July. It has only underperformed the JPY and CHF among the majors.

Technically, the world’s most traded pair is gearing up for a “death cross” of its 50-day and 200-day SMA just above 1.20. This points to more downside and support lies at yesterday’s low at 1.1751 ahead of the cycle low at 1.1704. Resistance sits at 1.1825 and the mid-figure zone.

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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