The foreign exchange markets have had a tumultuous time as the US Dollar Index (DXY) surged sharply, continuing its two-week recovery. It finally neared the key 99.00 threshold against the broader backdrop of shifting economic data and expected central bank policy shifts. This intricate development has caught the attention of traders and analysts alike, indicating major shifts in market sentiment.
The DXY’s recent performance has been marked by solid gains, reflecting the Greenback’s strength in response to global economic conditions. When the index marched back towards the 99.00 barrier, market observers pondered what was responsible for this comeback of sorts. For all currency pairs, but especially for the USD/JPY, this strong dollar backdrop continues to be influential.
On the currency markets, the USD/JPY cross was extremely volatile. It has solidified its move, gaining ground to three-month highs past the 149.00 level. The bullish trend in USD/JPY reflects the strength of the Greenback compared to the Japanese Yen. This change is indicative of the contrasting economic views from the U.S. and Japan. In USD/JPY the strong 14.5% move seen so far this year underscores the persistent dollar rally.
West Texas Intermediate (WTI) crude oil prices resumed their weekly retracement. They are currently trading at about $66.00 per barrel. The significant shifts in WTI quoted prices have major repercussions across the economy, especially for industries and households affected directly by energy prices. Traders will continue to watch these price trends play out alongside other economic developments in hopes they correlate with additional industry growth.
Australian Dollar (AUD) suffered one of the biggest blows. The volatile AUD/USD cross was hit on the nose, crashing all the way down to three-week lows near 0.6450. The decline occurred right before the release of the Reserve Bank of Australia’s (RBA) Minutes on July 22. This release should provide useful context to forthcoming monetary policy releases. Market participants will be watching this information closely to judge the Reserve Bank’s commitment not to raise interest rates and the need for a robust recovery.
The UK announced their intentions to publish their public sector finances data on July 22. This data will offer critical market investor context. Analysts believe this report will upset the entire currency trading landscape. Traders will assess fiscal sustainability and the potential impact on monetary policy.
The Euro faced further downside as EUR/USD continued to find itself under pressure, drifting back towards the mid-1.1500s and multi-week lows. This depreciation reflects an underlying concern about economic stability in the Eurozone. Secondly, it calls into question the extent to which the ECB should change its future monetary policy in light of sustainability concerns. Though welcome, currency traders are looking at these moves as a sign of the beginning of a real recovery, or at least another step back down.
In commodities, silver prices saw a high degree of variability, turning positive and negative around the $38.00 level for a single ounce. This upswing and downturn is consistent with the greater precious metals market during periods of mixed investor sentiment. In like manner, gold prices continued their consolidation slightly above the $1,300 level per troy ounce. The consolidation in gold prices indicates that investors are still considering their choices amid a very volatile economic environment.