The US dollar has started the week on the back foot, which is very much a continuation of the downside pressure encountered in the week just passed.
Firstly, last Friday, detailed in the prior blog, following Trump’s announcement retaliation on China’s Hong Kong actions, it was not as bad as feared. As I tweeted on Friday:
Elsewhere, overnight China reported its Caixin/Markit Purchasing Managers Index showing a marginal but unexpected improvement in Chinese factory activity last month. It rose to a four-month high in May, climbing to 50.7 from 49.4 in April.
Some also attribute the USD weakness to thoughts of a closer U.S. Presidential election in November, given the violence and protesting occurring in major U.S. cities. Do note that Donald Trump is seen as more of a USD positive and uncertainty of a new potential incoming leader could prove to also be a USD negative.
What does this mean for the markets?
Following the aggressive market intentions laid out last week, with the massive risk-on mood, it is hard right now to be bearish. Riskier FX currencies pushed for critical range-breakouts versus the USD. There is still of course risk of the U.S. and China escalating, however right now, markets do not deem it to be so much of a threat for now. It could be another negative week for the greenback.
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