Euro Fx/U.S. Dollar Futures Market News and Commentary
Dollar Index Closes Rallies to 2-week High on Strong U.S. Economic Data
The dollar index (DXY00) on Friday rallied sharply to a new 2-week high and closed the day up +0.55 (+0.56%). June euro-fx futures (E6M9) closed -0.0072 (-0.64%), and EUR/USD (^EURUSD) fell -0.0068 (-0.60%). June yen futures (J6M9) closed down -0.0020 (-0.22%), and USD/JPY (^USDJPY) rose +0.17 (+0.16%). The dollar index on Friday rallied on solid U.S. economic reports that were hawkish for Fed policy. The U.S. May retail sales report of +0.5% m/m for both the headline and ex-autos reports was close to expectations of +0.6% headline and +0.4% ex-autos. Meanwhile, the U.S. May industrial production report of +0.4% m/m was stronger than expectations of +0.2%. The preliminary-June U.S. consumer sentiment index fell by -2.1 points to 97.9, but that was in line with market expectations and U.S. consumer sentiment remains generally strong. The Chinese yuan on Friday's weakened slightly by -0.1% due to Friday's weak Chinese May industrial production report of +5.0% y/y, which was the weakest report since 2002 and indicated that the Chinese manufacturing sector continues to slow due to the US/Chinese trade war. GBP/USD fell sharply on Friday and closed -0.67% at $1.2589/GBP, just mildly above the late-May 5-1/2 month low of $1.2559/GBP. Boris Johnson is cruising to victory in the Conservative Party leadership race and the markets are concerned about a no-deal Brexit given his vow to take the UK out of the EU by the October 31 deadline even if a no-deal Brexit is required as a last resort. Conservative Party MPs will whittle down the list of candidates from the current list of six to just two candidates with votes next Tuesday through Thursday. The final two candidates will then be voted on by grassroot Conservative Party members and a new Party leader and Prime Minister will take power in the week of July 22. Big Picture Dollar Factors: Bullish factors for the dollar index include (1) the Fed's balance sheet drawdown program through September and the Fed-dot forecast for one more rate hike in 2020 vs near-zero policy rates by the ECB and BOJ, (2) relative strength in the U.S. economy, and (3) the repatriation of U.S. corporate overseas cash under the 2018 tax law. Bearish factors include (1) the recent decline in the 10-year T-note yield to a 1-3/4 year low of 2.052%, which weakens the dollar's interest rate differentials, (2) market expectations of an 80% chance for a rate cut at the July FOMC meeting, (3) trade tensions and Washington political uncertainty, and (4) the wide U.S. budget and current account deficits. Bearish factors for EUR/USD include (1) the ECB's promise to leave interest rates unchanged at least through mid-2020, (2) weak Eurozone economic growth, (3) the slump in the 10-year bund yield to a record low of -0.270%, which undercuts the euro's interest rate differentials, and (4) Brexit risks.
The dollar index (DXY00) on Friday rallied sharply to a new 2-week high and closed the day up +0.55 (+0.56%). June euro-fx futures (E6M9) closed -0.0072 (-0.64%), and EUR/USD (^EURUSD) fell -0.0068 (-0.60%). June yen futures (J6M9) closed down -0.0020 (-0.22%), and USD/JPY (^USDJPY) rose +0.17 (+0.16%). The dollar index on Friday rallied on solid U.S. economic reports that were hawkish for Fed policy. The U.S. May retail sales report of +0.5% m/m for both the headline and ex-autos reports was close to expectations of +0.6% headline and +0.4% ex-autos. Meanwhile, the U.S. May industrial production report of +0.4% m/m was stronger than expectations of +0.2%. The preliminary-June U.S. consumer sentiment index fell by -2.1 points to 97.9, but that was in line with market expectations and U.S. consumer sentiment remains generally strong. The Chinese yuan on Friday's weakened slightly by -0.1% due to Friday's weak Chinese May industrial production report of +5.0% y/y, which was the weakest report since 2002 and indicated that the Chinese manufacturing sector continues to slow due to the US/Chinese trade war. GBP/USD fell sharply on Friday and closed -0.67% at $1.2589/GBP, just mildly above the late-May 5-1/2 month low of $1.2559/GBP. Boris Johnson is cruising to victory in the Conservative Party leadership race and the markets are concerned about a no-deal Brexit given his vow to take the UK out of the EU by the October 31 deadline even if a no-deal Brexit is required as a last resort. Conservative Party MPs will whittle down the list of candidates from the current list of six to just two candidates with votes next Tuesday through Thursday. The final two candidates will then be voted on by grassroot Conservative Party members and a new Party leader and Prime Minister will take power in the week of July 22. Big Picture Dollar Factors: Bullish factors for the dollar index include (1) the Fed's balance sheet drawdown program through September and the Fed-dot forecast for one more rate hike in 2020 vs near-zero policy rates by the ECB and BOJ, (2) relative strength in the U.S. economy, and (3) the repatriation of U.S. corporate overseas cash under the 2018 tax law. Bearish factors include (1) the recent decline in the 10-year T-note yield to a 1-3/4 year low of 2.052%, which weakens the dollar's interest rate differentials, (2) market expectations of an 80% chance for a rate cut at the July FOMC meeting, (3) trade tensions and Washington political uncertainty, and (4) the wide U.S. budget and current account deficits. Bearish factors for EUR/USD include (1) the ECB's promise to leave interest rates unchanged at least through mid-2020, (2) weak Eurozone economic growth, (3) the slump in the 10-year bund yield to a record low of -0.270%, which undercuts the euro's interest rate differentials, and (4) Brexit risks.
