US dollar index struggles, focusing on G20 Finance Ministers and Central Bank Governors Meeting

On the Asian session on Monday, the US dollar index fluctuated narrowly. After a calm week after the independence day, the market will resume a more conventional economic data rhythm this week. The June CPI report and New York manufacturing survey will be released Tuesday, followed by June PPI data released on Wednesday. Traders will focus on June retail sales reports, Philadelphia Fed manufacturing survey and weekly unemployment benefits filing data on Thursday. June housing starts and a preliminary survey of consumer confidence at the University of Michigan will be released Friday morning. It is worth mentioning that US President Trump plans to issue a "major statement" on the Russian issue on Monday, and investors also need to pay attention. In addition, the market is concerned about the speeches of several Fed officials, the Fed's Beige Book; speeches by the Bank of England governor and Treasury Secretary, and a two-day meeting of G20 Treasury Secretary and Central Bank governors that began on Thursday (July 17-18).

Analysis of major currencies

Dollar: As of press time, the US dollar index hovered around 97.83, the US dollar rose against major currencies such as the yen and the euro last Friday, and President Trump announced new tariffs on Canada and other trading partners, and trade tensions heated up again. Entering July, the US dollar index rebounded from its year-on-year low of 96.37 (July 1) to around 98.00, ending its two consecutive weeks of decline. The US Treasury yields remained at a high range, and the stable performance of economic data such as non-farm employment in June provided support for the US dollar. According to data from the U.S. Department of Labor, non-farm employment added 206,000 new jobs in June, slightly exceeding market expectations.The unemployment rate remained at 4.1%, indicating that the US economy remains resilient. Technically, the downward trend of the US dollar has not reversed since February, and the current rebound may be just a technical adjustment. In terms of technical indicators, the Relative Strength Index (RSI) rebounded to 48, indicating that the buying momentum has recovered, but the average direction index (ADX) fell to 13, indicating that the trend momentum is insufficient. The US dollar index is still below the 200-day moving average (103.64) and the 200-week moving average (103.02). The long-term trend is bearish and may fluctuate in the range of 96.30-99.42 in the short term.

Euro: As of press time, the euro/dollar hovered around 1.1687, with the euro falling 0.1% against the US dollar to US$1.1688. On Saturday, Trump said that he would impose 30% tariffs on goods imported from the EU and Mexico from August 1 respectively. Recently, the number of initial unemployment claims announced by the United States has dropped to 227,000, a seven-week low, strengthening the resilience of the US labor market and thus supporting the strengthening of the US dollar. At the same time, the CME interest rate observation tool shows that the market's expectations for the Federal Reserve's interest rate cut in July have dropped to less than 5%, while the expectation of a rate cut in September has also dropped from 72% to 65%. Technically, the EUR/USD fell below 1.1700, but was still above the 20-day simple moving average (SMA) 1.1662. Despite the rebound to current price levels, the pair remained below 1.1700, paving the way for a further downward trend. The first support level will be the 20-day SMA. Once the breakthrough is made, the next target will be 1.1650, followed by the 50-day SMA at 1.1464.

GBP: As of press time, GBP/USD hovered around 1.3501, and GBP fell 0.54% against the US dollar last Friday, hitting a two-week low of $1.35050. Data shows that the UK economy contracted unexpectedly for the second consecutive month in May. The UK will release June CPI data on Wednesday, which has a significant impact on the pound's trend. In the latest interest rate decision, the Bank of England kept the interest rate unchanged, but the results were slightly dovish than expected. Six of the nine policy makers voted to keep interest rates unchanged, while the remaining three chose to cut interest rates by 25 basis points. The Bank of England pointed out that GDP growth remains weak and the labor market continues to relax, showing obvious signs of slack. This prompted traders to increase their rate cut bets, with a 77% chance of a 25 basis point cut for the upcoming August meeting. Another rate cut before the end of the year has been fully priced. Technically, the reversal from the trend resistance level may trigger a larger pullback in the overall uptrend of GBP/USD. The focus of the recent weekly opening range is the breakthrough, which is used as a guide. From a trading perspective, if the pound rises during this period, the decline will need to be limited to 1.3388 and will eventually close at 1.3749Only above can the recovery of the upward trend be marked.

Summary of news from the foreign exchange market

1. Trump plans to increase tax by 200% in Japan's pharmaceutical industry. US President Trump said that he plans to impose tariffs of up to 200% on imported pharmaceuticals and raw materials. Among all the known items of US tariffs, this tariff rate is the highest, causing high tension in the Japanese pharmaceutical industry. Data shows that Japan's exports to the United States exceeded 400 billion yen (about 19.65 billion yuan) last year. Among all export countries and regions, exports to the United States accounted for as much as 35.5%, making it the largest export market for Japan's pharmaceuticals. The Japan Pharmaceutical Industry Association has set up a special investigation team in April this year to evaluate the potential impact of US tariff policies on the industry. The association is concerned that if the new tariffs www.centrdom.infoe into effect, Japanese pharmaceutical www.centrdom.infopanies may face a sharp decline in returns and have to cut their R&D budgets, which may lead to delays in new drug development projects and have a long-term impact on the entire industrial chain.

2. Iran warns the three European countries that if sanctions are resumed, they will be kicked out of nuclear negotiations

European News Agency reported on July 12 that Iranian Foreign Minister Abbas Aragici issued a warning to the three major European countries (Germany, France and the United Kingdom) participating in the currently suspended negotiations on Iran's nuclear program: If the three countries resume sanctions on Iran, it will automatically mean that they will be excluded from any future dialogue on this issue. "The move to restore sanctions will mean the end of Europe's role on the Iranian nuclear issue." Aragic made the above statement to several Iranian ambassadors on the 12th.

3. The United States issued a "tariff ultimatum" to the EU and Mexico, and its allies strongly responded

U.S. President Trump issued two tariff threat letters on the 12th, saying that from August 1, it would impose 30% tariffs on goods imported from the EU and Mexico. The European Union, the largest trading partner of the United States, immediately stated that it would counter it if necessary. So far, Trump has issued tariff conditions to 24 countries and 27 EU member states. Analysts said that the trade turmoil caused by these letters will eventually force American consumers to pay.

4. "Federal Message Bottle": Fed's independence is challenged again, and interest rate cuts are not expected this month. The dispute over the renovation of the building has made a faction within the Trump administration that has long wanted to challenge the Fed's independence even more bold. Treasury Secretary Bescent, and other economic advisers generally advocate maintaining the independence of the Federal Reserve. For example, Becente refused to criticize Trump for the renovation of the building in a recent Fox Business interview. But other advisers and external allies have been exploring legal ways to remove Powell from office since the election. In his testimony last month, Powell said: “No one is willing to undergo a major renovation of a historic building during his tenure, let alone two historical buildings that require extensive renovations.Built. "Previously, Trump pushed for lower interest rates on a larger scale to reduce government borrowing costs. The Fed is not expected to cut interest rates later this month, but Powell has already suggested that interest rates may be cut later this year if inflation performs well or the labor market is weak. Trump hopes to lower the debt service costs of the federal deficit, and his tax cuts could widen the federal deficit. But outside extreme situations such as war, central banks in advanced economies will resist such pressure. They believe that stabilizing inflation is to maintain people Confidence in the country's currency is crucial.

5. Ukrainian parliamentarian: The United States partially resumes aid to Ukraine, but the total volume has been reduced by 90%.

Ukrainian parliament member Alexander Dubinsky (detained in a pre-trial detention center for suspected treason) said in an interview that the United States has allocated only $300 million, accounting for less than 10% of the promised $3.8 billion. Dubinsky posted on Telegram: "Look at how the 'victory' of US military aid works. First, cutting off aid forced Zelensky to accept the United States' view on further negotiations with Russia. After receiving the relevant signal, $300 million in aid was thawed, www.centrdom.infopared with the previously agreed total military aid of $3.8 billion. "The lawmaker pointed out that the restored aid accounts for less than 10% of the total possible aid. He stressed that this is equivalent to a 90% reduction in aid.

Institutional Perspective

1. Institutions: The U.S. Treasury market has not been fully priced for the Fed Chairman's replacement

Natixis analyst John Briggs said that the White House's increasing pressure on Powell has not been fully priced by the U.S. Treasury market. Investors are pricing this year's rate cut, which has lowered short-term yields. The faster rise in long-term yields are usually attributed to concerns about the U.S. fiscal deficit. "Unless we can better understand Trump's preference for the next Fed Chairman, I don't think the market will be affected in pricing," Briggs said. Powell has shown that he will remain until his term ends in May. Trump is expected to pick one more Dove’s successor.

2. Bank of Montreal: U.S.-Canada trade negotiations are inevitable to avoid durable tariffs

Robert Kaffsic, a capital market economist at the Bank of Montreal, Canada, said that Trump’s letter to Canadian Prime Minister Carney on trade shows that regardless of the outcome of Trump’s talks with Carney, the U.S. tariffs on Canadian imports will continue. Trump warned in the letter that if Canadian imports do not meet the existing US-Mexico agreement provisions, he would face higher tariffs of up to 35%, and imply that tariffs targeting specific industries will continue to exist. Trump also mentioned that if Canada cooperates more with Washington in curbing fentanyl smuggling, he might consider adjusting tariff levels. Kafsic pointed out: “It seems that the final result is increasingly unlikely that there is no such lasting tariff. ”

3. Bank of America: Bank of England may slow down quantitative tightening in October

Bank ofInterest rate strategists pointed out in a report that the Bank of England may slow down the pace of quantitative tightening from October, reducing the annual Treasury bond reduction to £60 billion from the current £100 billion. Bank of America said the slowdown in the pace of quantitative tightening may be due to the operation being in fact tightening the monetary policy environment, putting additional pressure on the economy. Therefore, adjusting the pace will help alleviate its impact on financial conditions and economic growth.

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