USD Retreats Amid Dovish Fed Expectations

USD Still Weighed on By Dovish FOMC Minutes

The US dollar has traded lower over the European morning on Monday. The greenback started out well, trading higher, but initial gains were quickly reversed heading towards the US session.

With no key domestic data today, action is likely to be subdued as we enter the summer trading lull when the market is typically quieter. USD index trades 96.39 last as the decline from last week’s dovish FOMC meeting minutes starts once again.

USD Weakness Leads to EUR Higher

EURUSD is a little higher against USD so far today. Dovish Fed expectations appear to be outweighing ECB easing expectations at this stage, keeping EURUSD supported as it continues its recovery off the 1.1217 level. The pair traded at 1.1278 last. In the absence of any key data, price is likely to remain driven by USD flows.

GBP Rallying

GBPUSD is having a quiet yet positive start to the week. GBP lifted gently against the dollar over the first European session of the week. Focus today will be on a further debate between the two Tory leadership candidates currently competing for the role of head of the party and PM. GBPUSD trades 1.2560 last as the market inches nearer towards the 1.2604 level.

SPX500 Supported At Highs

Risk assets started the session strongly with the SPX500 trading up to fresh all-time highs before retracing the majority of the session’s gains with the index trading 3014.13 last.

The prospect of a Fed rate cut in July, along with optimism over a potential US/China trade deal is keeping equities well supported. And this theme is likely to continue in the near term.

Safe Havens Benefit From USD Weakness

Safe havens have had a better start to the week today with both gold and JPY rising against USD. Two weeks out from a potential US rate cut, XAUUSD remains well supported. Gold traded 1416.37 last as price continues to trade between the 1391.61 and 1433.48 levels.

USDJPY is lower today, trading back below the 107.90 level at 107.82 last.

Oil Rally Resumes

Having broken above the 60.32 level last week, oil prices remain supported. Crude traded up off the level again over the European morning on Monday.

Last week, the EIA reported a fourth consecutive weekly drawdown in US crude stores which has helped to alleviate concerns over the demand outlook. With OPEC having announced a 9-month extension to its current production cuts, the fundamental backdrop for oil is supportive. Focus is on further upside in the near term.

Commodity Currencies On The Climb

USDCAD has been lower again today. A weaker USD and higher oil prices have kept CAD well supported. Last week the BOC struck a relatively resilient tone once again at its July rates meeting which stands in contrast to the messages from other central banks in the G10 space currently. With oil remaining supported, and USD likely to head lower towards the FOMC meeting at the top of the month, USDCAD looks set for further downside. The pair trades 1.3024 last with price sitting back under the 1.3073 support which was broken on Friday.

AUDUSD is making a solid push this morning also. Optimism around efforts to deliver a US/China trade deal, as well as rising gold prices and the prospect of a Fed rate cut, are keeping AUD well supported.Price is now heading back up towards last week’s .7048 highs, above which the bearish trend line from year to date highs sits very close. A break above these levels could pave the way for a much larger correction higher in AUD.