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The US Dollar Index fell strongly yesterday and is flirting with its three-month low. The proximate cause was the US Treasury’s announcement that it will at least double liquidity-support buybacks of Treasury securities with maturities of 10 to 30 years. The move came after the 30-year Treasury yield reached a 19-year high of 5.337%; it subsequently fell to around 5.18% following the announcement. This had a strong impact in the Forex market (notably the GBP/USD and NZD/USD which reached 3-month or near highs) but also helped boost some commodities and cryptocurrencies. Many trend traders will have taken new long positions in GBP/USD.
The minutes of the Federal Reserve’s July meeting, released yesterday, revealed that inflation concerns had increased. Several policymakers were prepared to raise rates, while “many” stated that further tightening would likely be needed if inflation did not fall. The previous 9–3 vote to hold the federal funds rate at 3.50% to 3.75% was therefore more hawkish beneath the surface than it initially appeared. This might prevent much further downside in the USD today, coupled with potential buyers at or near the DXY's 3-month low.
Gold has reacted very strongly, rising by more than 3% to reach its highest level in more than two and a half months. The combination of a sharply weaker US Dollar and falling long-term Treasury yields is bullish for gold, and the metal will be watched closely by trend traders on the long side, although strict trend followers will remain on the sidelines.
Sugar futures continued rising yesterday to reach a new long-term high price. Trend traders will be long here. If Sugar futures are too large for retail traders, they may get exposure through an ETF like CANE which is more affordable, or even over the shorter term with a Sugar CFD.
In the Forex market, the US Dollar is the weakest major currency since yesterday’s London open. EUR/USD rose above 1.1650, GBP/USD traded well above 1.3600, AUD/USD moved back above 0.7100, and NZD/USD reached 0.5930.
Crude oil remains elevated after recent gains, with WTI near $85 and Brent near $92. The market is balancing the continued Strait of Hormuz tensions against confirmation that significant oil volumes are still moving through the waterway. President Trump has announced a ratcheting up of economic warfare against Iran after castigating the country's unwillingness to conclude a serious deal.
The Australian Dollar is likely to face some pressure today after unexpectedly weak Australian employment data. Employment fell in July and the unemployment rate rose from 4.4% to 4.5%, its highest level since late 2021. This sharply reduces the perceived likelihood of another near-term rate hike by the Reserve Bank of Australia.
The Swedish Riksbank will announce its policy decision today. It is widely expected to leave its policy rate unchanged at 1.75%, so any surprise in the statement or guidance may be more important than the decision itself for the Swedish Krona (SEK).