The U.S. dollar initially rallied alongside the Japanese yen overnight as the sell-off of Chinese equities deepened.
Overview
The Chinese government has increased its regulatory crackdown and the risk aversion is spreading to other Asian markets and benefiting safe-haven currencies. However, the greenback has given back much of those gains in early trading.
Traders will now shift their focus to this morning’s durable goods data. June Durable goods increased only 0.8%, failing to meet expectations of a 2.2% increase. All the subcategories, including the so-called “core” reading that strips out transportation, underwhelmed expectations. The dollar has softened more in the minutes following the disappointing print.
The Federal Reserve begins its two-day meeting today. The conclusion of the meeting tomorrow at 2 pm will likely be the biggest risk event on this week’s agenda. We expect the central bank to continue its “taper talk” at this meeting, but they are unlikely to make a move just yet. Expect the Fed to beat the “transitory” drum on inflation fears. Depending on the delta variant of the coronavirus and inflation data, tapering of monetary stimulus could come as soon as this winter, which would be dollar positive.
Large tech companies such as Apple and Microsoft will report earnings after the bell.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇑
After falling early last night, the Euro has staged a comeback and is now slightly stronger against its American rival. You would be forgiven for not noticing the recent moves in EUR/USD as the pair has held a half a percent band over the last two weeks despite major risk events on the calendar.
Data is light today and growth forecasts from Spain are unlikely to change the tide. Spain’s government maintained its growth forecast for 2022, saying the economy should expand 7.0% next year
CAD ⇓
The Canadian dollar dropped most of the evening as most commodity-based currencies softened as global risk sentiment soured. The Chinese regulatory crackdown is largely responsible for the move. However, the “loonie” has been able to recover some of its losses in early trading, mostly following disappointing durable goods data in the States.
There is no major economic data out today in Canada.
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