Dollar still in bullish trend, U.S. Treasury yield curve inversion sharply intensifies
The dollar’s halo has dimmed a bit last month as U.S. Treasury yields continued to fall. After hitting a multi-year high of 3.5% last month, the 10-year U.S. Treasury yield has now fallen to 2.77%, as interest rates market bets that the Federal Reserve will slow the pace of rate hikes. Yesterday’s U.S. inflation data pushed the market’s odds of a 75-basis-point rate hike at the September Fed meeting below 40 percent, compared with an earlier forecast of more than 70 percent.
Economic recession expectations continue to ferment, why does the dollar not rise? How will the dollar trend in the third quarter be interpreted?
The dollar may turn to the downside, but it has yet to start and the price appears to be trying to find support. The daily chart shows that the uptrend line remains in effect with a series of previous highs and lows between 104.92 and 103.20, which is expected to provide support should the dollar weaken further.
US Dollar Index Daily Chart
EUR/USD is strengthening but there is currently no substantial reason to be bullish on the EUR fundamentally. Eurozone inflation is high, growth is sluggish, food prices are soaring and the energy crisis shows no signs of abating. In addition, water levels on the Rhine in Germany have dropped to extremely low levels, preventing ships from transporting supplies such as energy and food to factories as planned.
The euro against the dollar continued to rise from the rebound after falling below parity on July 14, and is currently around the 1.0340-1.0382 inflection point range. If the exchange rate effectively rises above this level, there will be no obvious resistance before 1.0500.
EUR/USD daily chart
The IG Client Sentiment Index shows that 52.38% of traders are currently net long EUR/USD, with a ratio of net longs to net shorts of 1.10:1. Net longs fell 12.31% from yesterday and 20.26% from last week. The number of net short positions increased by 6.13% from yesterday and by 17.89% from last week.
The IG Sentiment Index is often used as an inverse indicator, with most retail traders being net long suggesting EUR/USD could fall. Net-long positions, however, are down from yesterday and last week, and the latest change in positions warns that EUR/USD may reverse its uptrend, although most retail traders are currently net-long. (Written by Nick Cawley, translated by Leona)
The geopolitical situation drags down Europe’s prospects and uncertainty rises. How to grasp the future trend of the euro?
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