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The dollar has started the week lower with the U.S. dollar index down 0.18%. This follows last week’s 0.24% gain, reinforcing the impression that the dollar is trading without an agenda. The market’s attention has once again been drawn to equities, closing a volatile week and lifting the S&P500 by 1.96% (and a new record high), the Nasdaq 100 by 2.93% (another record high), and the Dow by 1.54%. With equity returns like that the dollar is relegated to the sidelines.

Looking at the major currencies, the dollar’s losses range from -0.26% vs. SEK to -0.08% vs DKK. The dollar’s few gains are concentrated vs. emerging market currencies, +0.37% vs. KRW and BRL, +0.28% vs. ZAR, and +0.27% vs. MXN.

U.S. Treasury yields are steady, holding onto last week’s gains and probably in a holding pattern until Wednesday’s FOMC rate announcement. It seems like the FOMC rate announcements are coming more often, but it has been 6 weeks since the last rate decision (June 16^th) so right on schedule. Recall the volatility from the June meeting when it was revealed that most Fed members had shortened their timelines for the first expected rate hike. FOMC meetings are becoming increasingly important given increasing inflation and labor market gains.

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The dollar turned weaker in early trading yesterday, leading the U.S. dollar index to close with a loss of 0.24%, its first down day after four consecutive daily gains. Dollar weakness has continued into today’s session with a current loss of 0.27% for the DXY.

The dollar is mixed vs. the G10 currencies, with the primary gain vs. the CAD, +0.27%. The CAD had strengthened 1.54% against the USD over the previous two daily sessions, but trendline support at 1.2525 combined with profit-taking has given the CAD a lift today. USDCAD has been trending higher since June 16^th, near-term support at 1.2525 and resistance at 1.2800 and next target resistance at 1.2875.

Other dollar gains are +0.23% vs. NZD, +0.11% vs. CHF, and unchanged vs. EUR. The dollar is -0.35% vs. NOK, -0.31% vs. GBP, and -0.14% vs. AUD.

Weekly Jobless claims were reported higher by 419k for the week ending July 17^th, above the 350k estimate.

Volatility in the U.S. Treasury market has subsided with all tenors holding onto yield gains from the previous two days. The 10-year note is hovering near 1.27%, well above the 1.15% low earlier in the week.

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Risk appetite returned in full force yesterday, reversing Monday’s equity-driven rout and breathing life into treasury yields. The S&P500 gained 1.52%, offsetting Monday’s 1.59% decline. The Nasdaq 100 had a similar result, gaining 1.23% after Monday’s 0.90% drop. And the Volatility Index (VIX) retreated to 19.73 after Monday’s 25.09 high.

The 10-Year U.S. Treasury note yield closed +2.86% after being -5.38% earlier in the day (low 1.126).

The one constant this week is U.S. dollar strength, with the U.S. dollar index is in its 5^th consecutive daily gain position, and +0.08% today. No surprise that the dollar has gained vs. the safe havens (+0.41% vs. JPY and +0.03% vs. CHF), but also notched gains vs. emerging markets (+0.53% vs. ZAR, +0.49% vs. BRL, +0.30% vs. KRW, and +0.22% vs. MXN), signaling the return to risk. Gains vs. the G10 include +0.15% vs. SEK, +0.12% vs. EUR & DKK, and +0.08% vs. AUD.

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The U.S. dollar index is higher today, adding to yesterday’s gains and marking the dollar’s 4^th consecutive daily advance. The dollar is trading at its highest level since April 1^st and is approaching resistance at the year’s high of 93.437.

The dollar is higher against all G10 pairs with notable gains of 1.07% vs. NOK, 0.72% vs. NZD, and 0.67% vs. GBP. The dollar’s widest gain in yesterday’s rally was +1.07% vs. the CAD. USDCAD closed above its 200-day moving average for the first time in over a year and is in its 4^th consecutive weekly gain. Next resistance is at 1.2875.

Downward pressure on stocks abated overnight with investors using yesterday’s selloff to re-enter the market at more favorable levels and add to existing long positions. European equities are trading near unchanged for the day and U.S. have opened slightly higher.

Treasury yields are lower again today as the 10-Year U.S. note touched a low of 1.126%, the lowest yield since February.

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Markets have taken a decisive ‘risk-off’ turn today, selling equities in exchange for shelter in the safe- haven JPY, CHF, USD, and U.S. government notes.

The JPY has strengthened the most today among the majors, gaining 0.85% vs. the USD and trading at lows not seen since May 27^th. Next support for the USDJPY is at 108.50. CHF is +0.25%. The primary dollar gains are +1.10% vs. CAD, +0.82% vs. NOK, +0.64% vs. NZD, +0.58% vs. AUD, +0.42% vs. GBP, and +0.25% vs. MXN.

The U.S. dollar index is -0.43% from today’s high.

European equities are trading at the lows of the day with the major indexes with losses of at least 2.25%. U.S. equities just opened with the DOW, S&P500, and Nasdaq all with losses of at least 1%.

The equity volatility index (VIX) is +18.70%, reflecting investor fears for much lower equity prices.

U.S. treasury yields are lower as a stampede to safety drives up prices. The U.S. 10-year treasury note is trading at 1.210%, a yield not seen since February 12^th.

Historically high asset prices, growing numbers of COVID-19 infections, and high inflation have combined to dampen expectations for continued economic rebound.

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The dollar rallied on yesterday’s surprise increase in CPI data, reported for June +0.9% vs. estimate +0.5%. Treasury yields also surged and the major equity indexes declined, all in line with the thesis that higher inflation = upcoming rate hikes by the Fed. But given previous reaction to signals of higher and higher inflation, yesterday’s market reaction was relatively tame. It was the highest CPI reading in 13 years, but yesterday’s U.S. dollar index rally fell short of last week’s high of 92.845. And today the dollar index is lower by 0.37%, U.S. equity futures are higher, and treasury yields are lower… all back in line with pre-CPI levels.

So why the ‘ho-hum’ reaction to clear signals of inflation? One explanation may be that markets are resigned to higher rates eventually but will delay adjust trading strategy until there are tangible changes to the Fed’s rate policy.

Today the dollar has surrendered all of yesterday’s gains, completely reversing the sign vs. the G10 pairs:

-1.35% vs. NZD

-0.68% vs. NOK

-0.52% vs. GBP

-0.50% vs. AUD

-0.48% vs. JPY

-0.47% vs. CAD

-0.45% vs. MXN

-0.38% vs. EUR & DKK

-0.34% vs. SEK

-0.17% vs. CHF

 Gold prices appear more susceptible to higher inflation, +1.01% today, trading at $1,825.97. Silver is higher by 1.51%.

The Bank of Canada will release its rate decision at 10:00 AM today, no change is expected to the current rate of 0.25%.

Today’s primary focus will be on Fed Chairman Powell’s Q&A session before Congress beginning at 10:00 AM ET.

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The dollar is higher today vs. its G10 peers, with primary gains +0.55% vs. NOK, +0.41% vs. CAD, and +0.38% vs. GBP. And the U.S. dollar index is higher by 0.21%, the first daily advance after two consecutive declines. But in terms of the ‘big picture’, today’s dollar advance is still contained within its 1-month ranges. Dollar index support is at 91.500 and resistance at 92.750.

Treasury yields are lower for the first time since last week’s Thursday-Friday rally. The U.S. 10-year snapped back from Thursday’s low at 1.266% to close Friday at 1.361% and is trading at 1.342% currently. The 10-year yield peaked in March at 1.762% so the recent drop should provide some homeowners enough incentive to refinance at a lower rate.

Economic releases this week include Tuesday’s CPI and Wednesday’s PPI, both key insights into inflation.

U.S. Fed Chairman Jerome Powell is scheduled to deliver the Semiannual Monetary Policy Report to House and Senate on Wednesday and Thursday at 12:00 p.m.

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Currencies traded in narrow ranges overnight, consolidating after yesterday’s dollar gains and light trading volumes ahead of today’s release of the FOMC’s meeting minutes from June 16^th.

The highlights of today’s dollar performance vs. the G10 currencies is +0.35% vs. SEK, -0.36% vs. NZD, and sub-0.15% moves vs. AUD, CAD, GBP, NOK, JPY, CHF, EUR, and DKK. It is a low volatility day today so far, even for the notoriously low volatility FX market.

Treasury yields are lower again in today’s trading, following through on yesterday’s decline where yields on the 10-year treasury dropped below March levels. The 10-year break below 1.4000% triggered a swift move to 1.3498% yesterday and are down to 1.3121% today (lowest yield since February). Given the recent signs of inflation and gains in the labor market, and a Fed that appears to be leaning towards sooner-than-expected tightening, the lower yields strike a dissonant chord… they are in contravention to the widely accepted thesis of an upcoming shift in Fed rate policy.

So why the sudden interest in buying treasuries, driving up prices and pressuring yields? Speculation ranges from sympathy buying following the drop in Germany’s 30-year bond yields; a short squeeze where traders are forced to close bearish price positions; and low liquidity over the July 4^th holiday.

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The U.S. dollar index is holding onto a slim gain today, +0.10%. Looking at the index component currencies, the dollar has gained vs. the EUR (+0.34%), SEK (+0.46%), CHF (+0.37%), and CAD (+0.56%) but declined vs. JPY (-0.27%), and GBP (-0.17%).

The dollar continues to be ‘bid up’ following June’s FOMC announcement when the dollar index broke above resistance at 90.500. In the three weeks since the Fed’s policy meeting the dollar index has made consecutive higher weekly lows, the shallower dips revealing increased interest in owning dollars. Support at 91.750 and resistance at 92.750.

Looking at today’s G10 currencies, the NZD and AUD have moved the most, with gains of 0.68% and 0.43%. Australia’s central bank (RBA) kept rates unchanged at its overnight policy decision but announced it would reduce its purchase of longer-dated bonds, the very definition of central bank ‘tapering’.

USDCAD: weekly range trading with support at 1.2300 and resistance at 1.2500. Bias is for a weaker CAD.

USDMXN: support at 19.7500 with weekly dips to 19.6000 possible. Resistance at 20.1000 and 20.2000.

Crude oil prices continue to move higher. Oil has gained 63% since the beginning of the year and was up 10.78% in June. Gold prices are +1.03% today at $1,810.67/oz. The 10-year treasury yield broke below 1.420 today and is currently trading at 1.400, its lowest yield since March.