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The Dow Jones Industrial Average turned negative again, as did SanDisk (SNDK.O) and Micron Technology (MU.O), which had previously risen by more than 2%.The Atlanta Feds GDPNow model maintains its forecast for real GDP growth in the second quarter at 1.7%.French Foreign Ministry: The Chargé dAffaires ad interim of the Russian Embassy in Paris was summoned by France on July 17.July 17 – The Pakistani military issued a statement on the 17th, saying that Pakistani security forces killed 24 terrorists in an operation in the northwestern Khyber Pakhtunkhwa province in the past 24 hours. The statement said that attacks by the Pakistani Taliban against police officers have surged recently, and the killed terrorists are suspected of involvement in multiple terrorist attacks and acts of violence. The statement added that security forces seized a large quantity of weapons and ammunition during the operation, and the clearing operation is still ongoing.July 17th - The cost of hedging against dollar volatility has fallen to its lowest level this year. This week, the one-month implied volatility index for the dollar spot index fell to its lowest level since December last year, a significant decline from the surge following the outbreak of the Iran-Iraq conflict in March. This indicates that despite the uncertain outlook for Federal Reserve policy and the resurgence of conflicts in the Middle East, traders still believe that the likelihood of a major unexpected event impacting the global reserve currency is extremely low. This calm market situation reinforces a key feature of the market this year: the resilience of the US stock market and the reduction in currency volatility have encouraged investors to flock to carry trades, which profit from interest rate differentials and tend to perform best when exchange rates and risk appetite remain stable. Francesco Pesole, a foreign exchange strategist at ING, said the decline in dollar volatility is "remarkable." He noted, "The resilience of the stock market, supported by the AI boom, seems to be stabilizing the exchange rate and helping to maintain a self-reinforcing environment of low volatility and thriving carry trades." He added that even if tech stocks experience a pullback, this trading strategy will remain popular.

EUR / USD Investors Challenge 1.0600 As Mixed US Data Tests Fed Conservatives, US NFP, and ECB's Lagarde

Daniel Rogers

Mar 10, 2023 11:31

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EUR / USD gains bids to extend the midweek rebound from a two-month low, rising 0.16 percent intraday near 1.0600 on Friday morning. In doing so, the Euro-Dollar pair celebrates the broad weakness in the US Dollar ahead of the important US employment report for February and Christine Lagarde's speech as president of the European Central Bank (ECB).

 

The major currency pair reversed a two-day losing trend due to mixed US data and a decline in US Treasury bond yields the day before. Hawkish ECB remarks and the market's positioning for today's crucial US data bolstered the run-up. However, inflation worries and geopolitical tension present challenges for EUR / USD buyers.

 

Despite this, US Initial Jobless Claims increased to 211K for the week ending March 3, compared to the predicted 195K and the previous week's 190K. In addition, there was a decline in Challenger Job Cancellations and an increase in Continuing Jobless Claims. Consequently, early indications for Friday's Nonfarm Payrolls (NFP) appear mixed and challenge the market's push for a 0.50 percentage point Fed rate hike in March, which is supported by Federal Reserve Chairman Jerome Powell's most recent signals.

 

Despite contradictory data, inflation worries continue to favor Fed conservatives, especially after Chairman Jerome Powell defends the stricter monetary policy, which restrains Euro prices. It should be noted that the most recent report from the New York Fed noted that recent upward revisions to inflation data and higher-than-anticipated levels of inflation had altered what had previously appeared to be a decline in price pressures.

 

Francois Villeroy de Galhau, an ECB policymaker, stated on Thursday that they will return inflation to 2% by the end of 2024 or 2025.

 

In addition to the aforementioned catalysts, geopolitical concerns emanating from US President Joseph Biden's proposed budget for 2024 and the US's partnership with the UK and Australia for nuclear submarines should challenge EUR / USD buyers.

 

In this context, US 10-year and 2-year Treasury bond yields extend yesterday's losses to 3.88% as of press time, dragging on the US Dollar Index (DXY), which is presently down 0.10 percent to 105.12. Despite this, Wall Street benchmarks closed with daily losses exceeding 1.5%, causing S&P 500 Futures to post modest losses as of press time.

 

According to market predictions, the employment report for February in the United States is expected to reveal a general softening. The same contrasts with the Fed's hawkish inclination to emphasize the likelihood of a significant market move in favor of the US Dollar in the event of a positive surprise. However, Lagarde of the ECB must confirm this.

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