A Generally Dovish Mood on the Global Market

Tension around North Korea continues to build. The United States is preparing a preventive strike, and Japan and South Korea are warning North Korea against attacking Guam. As a consequence, US indexes plummeted. NASDAQ yesterday sank below 6300 points, and the DJIA fell back below 22000. The declines are still not very deep, which indicates that the bulls will be prepared to return to securities at any time. Meanwhile, the yield on US 10-year treasury bonds dropped to 2.2%, i.e., by almost 1.2%, and gold futures on the COMEX surged to $1290 per troy ounce.

The US dollar managed to strengthen a little yesterday, despite contradictory employment data. Although the number of initial jobless claims rose, the total number of people receiving unemployment benefits fell to 1.951 million. Technically, the support for the EUR/USD pair was not captured, so it is still early to talk about a victory for the bears. Rather, the opposite is most likely: the bulls have a chance to go in with short stops. Open interest in the US dollar index speaks in favor of the bulls too: there is a small preponderance of short positions. Traders yesterday heard Dudley’s “dovish” speech about moderate growth in inflation to 2% amid strengthening labor market numbers. It is therefore clear that Dudley’s remarks can be taken as supporting the FOMC’s current course. At the moment, the market is rating the probability that the rate will remain unchanged in September at 99.6%. Regarding inflation: The US CPI, which may briefly prop up the dollar, comes out today at 12:30 pm GMT.

Naturally, traders yesterday were watching the rate in New Zealand. The RBNZ not only did not change the rate, as was predicted, but it also took a dovish position, stating that its monetary and credit policy will remain soft for the near future. In trading the kiwi lost considerable ground against the US dollar. The technical support may be at 0.7240, where there is a 23.6% Fibo correction, but a rebound may imply the formation of a classic head and shoulders with a subsequent win for the bears.

Russian traders yesterday were watching out for the Bank of Russia’s reserves. Currency reserves continue to grow; although, neither this nor the increase in the price of oil saved the MICEX index. The 1970 mark, where there is a 38.2% Fibo correction, was therefore not captured. Today is Friday, and we are not certain that the bulls will decide to make a powerful attack, despite the fact that second quarter GDP data published today at 1:00 pm GMT might provide support.

Nikolay Dudchenko, exclusively for Olymp Trade

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