- After last week’s rally, the dollar retreat is offering support to majors that are bouncing after losing ground last week.
- Oil prices continue to edge higher as a breakdown in Iran talks continues to avert the prospects of oversupply.
- U.S. stock futures are showing signs of bouncing back after the worst week since October
- Cryptocurrencies remain under pressure amid a massive crackdown in China.
The strong bullish momentum experienced on the U.S. dollar late last week eased off at the start of the week as the dollar index encountered strong resistance near the 92.40 level. Weakness in the greenback is one-factor offering resistance to the USD/CAD rally to two-month highs.
The USD/CAD registered minor losses at the start of the week after recent substantial gains in two-month highs of 1.2480 levels. The pair has found the going tough to the upside, opting to trade between the 1.2465 and 1.2470 range.
A rally followed by a close above the 1.2480 should pave the way for the pair to make a run for the 1.2500 level. However, an uptick in oil prices offers support to the Canadian dollar, consequently preventing further gains on the USD/CAD pair.
Additionally, a modest uptick in U.S. Treasury bond yields prevents further gains on the greenback, keeping the USD/CAD from powering to two-month highs. However, St. Louis Fed President James Bullard, hinting that the FED has started tapering discussion, should continue to offer support to the greenback.
EUR/GBP is struggling for direction near the 0.8600 level at the start of the week. The pair has been range-bound in recent weeks oscillating between the 0.8500 and 0.8600 levels.
The lack of catalysts to fuel a breakout out of the current small trading range is one factor holding the bulls and bears. Last week’s fears about a new Delta variant in the U.K. took a toll on the pound. The pound’s weakness was further offset by weakness in the euro amid ongoing uncertainty about E.U.’s economic outlook.
In the commodity markets, a delay in the Iran nuclear deal is the latest catalyst fuelling a spike in oil prices. Oil prices have found support above the $70 a barrel level, helped by improving demand and low supply with Iran still sanctioned.
Brent crude for August was up 23 cents at the start of the week to $73.74 a barrel as U.S. West Texas Intermediate Oil gained 0.4% to $71.94 a barrel.
Oil prices look set to continue edging higher amid growing optimism about vaccination fuelling summer travel. The rebound in oil demand is so high that it is fuelling concerns about a sharp drawdown in inventories.
With Iran Nuclear talks taking a pause following the election of Ebrahim Raisi as Iran’s president, there are no longer concerns about an oversupply in the market likely to push prices lower. Iran is insisting that U.S. sanctions on Raisi be lifted to resume negotiations, signals that the talks could take much longer.
U.S. futures rebound
U.S. stocks were in a recovery mode early Monday, going by the futures bouncing after one of the worst weeks since October of last week. U.S. stocks fell on Friday, sending all the major indices lower as the markets digested the prospects of the FED, raising interest much sooner.
The Dow was down by 3.5% last week as the S&P 500 fell 1.9% and the NASDAQ 100 fell 0.2%. The Dow fell 1.58% on Friday to 33,290 as the S&P 500 fell 1.3% to close at 4,166.45. Tech heavy Nasdaq was down 0.l9% to end the week at 14,030.
Last week, the FED raised its inflation expectations and projected the possibility of raising interest rates in 2023. Fed Bullard hinting that the FED could start tapering on the bond-buying program also weighed heavily on equity sentiments.
China’s intensifying crackdown on Cryptocurrency mining and trading is the latest catalyst weighing heavily on Bitcoin and other cryptocurrencies at the start of the week. BTC/USD has already dropped below the $33,000 level and looks increasingly bearish.
Over the weekend, many BTC mining operations were shut down in Sichuan province as authorities intensified their crackdown. Immediate reports indicate that as much as 90% of China’s Bitcoin mining capacity has been shut down.