Dollar Poised Below Highs

CURRENCY FUTURES

DOLLAR: While the dollar has not posted a higher high for the move early today it is poised just below the highs and continues to see a tailwind from the Fed symposium last week. However, a slight setback could be seen this morning following the release of the Dallas Fed manufacturing index.  The Commitments of Traders report for the week ending August 22nd showed Dollar Non-Commercial & Non-Reportable traders are net long 5,602 contracts after net selling 425 contracts.

EURO: In addition to an entrenched downtrend channel on the charts, the euro is facing pressure from negative sentiment among German export companies.  The Commitments of Traders report for the week ending August 22nd showed Euro Non-Commercial & Non-Reportable traders net sold 6,855 contracts and are now net long 201,254 contracts.

YEN: The Yen remains under a constant liquidation watch especially with comments from the Japanese bank suggesting their policy would remain unchanged over the next three quarters. An example of the Japanese economic malaise was seen from overnight scheduled data with the coincident index for June down minimally and Japanese leading economic index readings for June increasing incrementally.

SWISS: As in most nondollar currencies the trend remains distinctly down in the Swiss with fresh short entry pricing today pegged at 1.1412 and that short entry price tomorrow pegged at 1.139.

POUND: While a bank holiday likely thinned overnight trade in the Pound, we see the general trend in the Pound pointing down. However, comments from the Bank of England deputy governor overnight suggesting rates may have to stay high for some time clearly helps support the Pound against ongoing dollar related selling.

CANADIAN DOLLAR: The Canadian enters the new trading week significantly oversold from last Friday’s major washout. However, the Bank of Canada 2nd quarter GDP report scheduled for the end of the week is widely expected to show a definitive 2nd quarter slowdown.

STOCK INDEX FUTURES

Global equity markets overnight were higher except for the market in Hong Kong which traded fractionally lower. Global equity markets overnight were tracking higher seemingly because of a tax reduction for Chinese financial transactions like equities trading and real estate activities. While the Chinese transaction news is seen as a supportive global equity market development, the Hong Kong market was not cheered. Looking ahead to this week’s action, the markets feel as if the buzz from the AI frenzy continues to drain from investor sentiment in a fashion that suggests the August downtrend will continue.

With the two large down days last week resulting in a noted bounce into the close Friday a portion of the oversold condition of the market was likely balanced. Therefore, we see significant potential selling fuel on the sidelines which could be accentuated by fundamental selling interest. In the near term, it will be important to see the market’s reaction to this morning’s Dallas Fed manufacturing report which is expected to remain in severe contraction territory as equities can lose the ability to rally on soft data following an avalanche of federal reserve news.

INTEREST RATES

While the markets seem to have embraced a hawkish stance from the US Fed in symposium presentations last week, the bear camp seems to lack power early on. In the end, the markets see the Fed view on the economy as positive with the pace reportedly still at a level capable of keeping inflation alive. Furthermore, the Fed news extends dollar strength which could be accentuated by foreign money seeking attractive US yields. In fact, a recent poll of the Bank of Japan predicted on hold policies in Japan until at least July of next year and that highlights the likelihood that US rates could see its interest rate differentials expand worldwide. Today’s US economic report slate is thin with a Dallas Fed manufacturing business index expected to show noted weakness which could help firm up support in September bonds at 119-10 and at 109-06 in notes. However, the bull camp should be heartened by the fact that the treasury futures markets remain aggressively net spec and fund short as that signals the prospect that potential sellers on the sidelines are in smaller numbers. On the other hand, given the very large number of short positions in place upside chart pivot points could if violated result in a compacted wave of stop loss buying.

Interested in more futures markets?  Explore our Market Dashboards here.