Market Drivers – US Session, August 17

With surging Treasury yields and risk aversion, the US dollar keeps getting stronger. Nearing 103.50, the DXY index climbed to its highest point since June and extended its winning streak to five days. The momentum of the dollar is still strong notwithstanding this rebound.

According to the FOMC minutes, several members are still concerned about the risks of inflation. At the July meeting, two members voiced their preference for maintaining current rates. Overall, the minutes suggested that if inflation picks up, the likelihood of additional rate hikes is still being examined.

Later in the trading session, Wall Street stocks decisively turned downward. The Dow Jones lost 0.52%, marking its lowest close in a month. In the bond market, traders interpreted a hawkish message. The 10-year Treasury yield settled at 4.26%, the highest level since 2007, while the 2-year yield approached 5%.

EUR/USD broke below the 1.0900 level, increasing bearish pressure and closing at its lowest level in a month. Despite positive data from the Eurozone, it did not decisively impact the Euro. Euro area trade balance data is scheduled to be released on Thursday.

The Pound outperformed, buoyed by positive UK inflation and retail sales data. GBP/USD finished off its highs but managed to hold above 1.2700. However, the strength of the US Dollar is limiting the upside potential for the pair.

Economic Data
Eurozone Industrial Production jumps 0.5% MoM in June vs. -0.1% expected. Eurozone Preliminary GDP grows 0.3% QoQ in Q2 vs. 0.3% expected.

USD/JPY has risen for eight consecutive days, climbing above 146.00. The depreciation of the Japanese Yen has drawn market participants’ attention to Japanese officials and the possibility of intervention.

USD/CAD broke above 1.3500, rising towards 1.3550, reaching its highest level since early June. The pair is overbought but is seeking a new equilibrium level. The decline in crude oil prices (WTI lost 2.15%) has added weight to the Loonie.

AUD/USD extended its decline towards the 0.6400 area. The weakness is likely to persist while it remains below 0.6500. Australian labor data is set to be released on Thursday, with an expected increase of 15,000 in employment.

Metals are facing downward pressure again. Gold is currently trading below $1,900, at five-month lows. Silver has also experienced some losses, but it is still trading above the August lows, hovering around $22.40.

What to watch on Thursday

During the Asian session, a key report to watch will be the Australian employment report. Additionally, wholesale inflation data will be released in New Zealand and Machinery Orders in Japan. Later in the day, the US will release the weekly Jobless Claims and the Philly Fed report.

Also Read:

USD/JPY approaches overbought levels after FOMC minutes
Gold sinks after FOMC minutes

FOMC minutes: Inflation risks could require further tightening