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Hello everyone, today XM Foreign Exchange will bring you "[XM Group]: The weak rebound of the US dollar index is difficult to sustain, and non-agricultural weakness may trigger new selling pressure." Hope it will be helpful to you! The original content is as follows:
On Tuesday, the US dollar index fell first and then rose, and fell nearly 96 mark during the session, and then rebounded before the US session, but failed to return to above 97. As of now, the US dollar quote
Tariff Policy Development:
①Foreign Media: US officials seek to narrow the scope of the trade agreement and strive to reach an agreement before July 9. ② It is reported that India is seeking to reach a temporary trade agreement with the United States this week. US Treasury Secretary Besent: The trade agreement with India is "very close." ③Trump: Do not consider extending the deadline for tariff negotiations on July 9; doubting whether an agreement can be reached with Japan, Japan may face 30% or 35% tariffs. ④Japanese media: The United States will give priority to India in tariff negotiations and deal with Japan's issues later.
Governors of major central banks around the world have stated:
ECB President Lagarde: The task has not been announced to be vifu.netpleted, but the goal has been achieved. Will not promise future interest rate paths; Bank of England Governor Bailey: Monetary policy is still restrictive and will continue to be tightened; Bank of Japan Governor Kazuo Ueda: Potential inflation is lower than the price target, and the current interest rate is lower than the neutral level; Bank of Korea Governor Lee Changyong: The Bank of Korea continues to be in a loose cycle. Federal Reserve Chairman Powell: It is impossible to assert whether it is too early to cut interest rates in July, and no meeting is ruled out.
Vance "breaks the deadlock with one vote", the US Senate passed "Big and American"The House of Representatives is expected to vote this week.
The U.S. job vacancy for JOLTs unexpectedly rose to its highest since November last year in May, with traders slightly slashing expectations for the Federal Reserve's interest rate cut.
The US ISM manufacturing PMI shrank for four consecutive months in June, employment contracted again, and the price index accelerated.
Trump threatened to let DOGE review the subsidies received by Musk and his vifu.netpany. Musk responded: All are cut, just now; Trump also said he did not want to own electric cars because it might explode, and threatened to "consider expel" Musk.
The Trump administration officially shut down the US Agency for International Development.
The eurozone manufacturing PMI hit a 34-month high, Germany continued its recovery momentum, and France was under pressure.
Number of new jobs: 100,000; unemployment rate: 4.3%; average hourly wage monthly rate: 0.3%
So far, the labor market has performed well, which is enough to support the Federal Reserve to maintain interest rates unchanged, but we believe that there are still some signs of weakness under the surface of the market. We initially expect the economy to cool further in June, with the number of new non-farm employment slowing to 100,000 from 139,000 in May, and the unemployment rate will rise slightly from 4.2% to 4.3%. We also expect average hourly wages to grow by 0.3% month-on-month, with a slight decrease in year-on-year growth rate from 3.9% to 3.8%, although our forecast is nearing its end.
In summary, we believe that employment data that meets expectations is not enough to prompt the Fed to take immediate action. We believe that the cooling signs do leave room for further monetary policy easing later this year, but we believe that most members of the Federal Reserve will seriously consider the July policy only if there is a clear downward surprise in the non-farm data, namely, 50,000 new jobs or less.
We believe that the asymmetry of non-farm data remains unchanged: the selling rate of the US dollar when the non-farm data is lower than expected is much higher than when the non-farm data is stronger than when it exceeds expectations. We expect the unemployment rate to jump to 4.4%, and if non-farm data vifu.nete true, we expect the US dollar to suffer a widespread sell-off, and the yen/CHF/Euro will outperform the market on the same day. But follow-up may be limited due to leveraged shorts holding the dollar, possible profit-taking losses before the July 4 holiday, and employment reports are not enough to trigger the Fed's interest rate cut in July. This may require another dovish adjustment from the Fed after that to enable the EUR to reach or break through our recent forecast 1.20 target.
1. Number of new jobs >14.5 - [Probability 5%]
This tail scenario will trigger the market to rethink the trajectory of the US economic growth. If the vifu.netpany has thisThere is a kind of confidence, then it is likely to be a vifu.netbination of lower tariff expectations and higher tariff costs passing on to consumers. Our report shows that after inflation-adjusted, U.S. consumers who currently have more cash are generally resilient vifu.netpared to the fourth quarter of 2019. U.S. Treasury yields are expected to soar, which may curb stock returns in a few trading days as volatility soars, but ultimately this is still a positive for the stock market. The S&P 500 is expected to rise by 1%-1.5%.
2. The number of new jobs is between 125,000 and 145,000 - [probability 25%]
This is another positive result for US stocks, reflecting that the impact of the trade war is lower than expected. While we think the single-day gains in U.S. stocks are the second strongest in these scenarios, this may be the best medium-term result because it will be the "blond girl" effect. At the same time, this will be the first step to restart economic growth, although the inflation stimulus effect is small. The S&P 500 is expected to rise by 0.75%-1.25%.
3. The number of new jobs is between 105,000 and 125,000 - [Probability 40%]
This is our basic scenario, that is, as long as the number of new jobs is higher than 100,000, the US stock market will continue to rise. Although we think this is a positive one, it is unlikely that even if the data is close to the lower edge of the range, it is likely to trigger a substantial shift in market sentiment, especially with Federal Reserve Chairman Powell saying that the tariff impact is expected to be reflected in the June-August data. The S&P 500 is expected to rise by 0.5%-1%.
4. The number of new jobs is between 85,000 and 105,000 - [probability 25%]
This is the first downward scenario that has not met expectations. Given that the trade agreement is about to be announced, the results are difficult to predict. If the United States signs an agreement with its top ten trading partners before the non-farm data, then the non-farm data may not matter. That being said, the possibility of a unified 10% tariff on multiple trading partners increases some of the risks. If there are not many details of the trade agreement, or if the agreement is not reached before the non-farm, even if the published non-farm data is at the upper edge of the range, it will be enough to turn the market back to trading recession/stagflation. The S&P 500 is expected to fall 0.25%-1.5%.
5. The number of new jobs is <85,000 - [probability 5%]
In this situation, it is best for the market to believe that an economic recession is possible, while the worst is stagflation, which is unlikely to be introduced at that time. While lowering effective tariffs may eventually offset their impact, the risk faced by the economy is that the new tax/budget bill cannot form enough fiscal thrust to pull the economy out of the downward trend. And given the size of the bill, additional financial support measures are unlikely to pass before the economy falls into a perceived recession. This is vifu.netpletely contrary to the "Blonde" theory. If the CPI data on July 15 is significantly higher, this impact will intensify. The S&P 500 is expected to fall 2%-3%.
The US dollar continues to decline slightly in a low volatility. Regarding volatility, it is worth noting that the trading volatility levels of stocks and bonds have fallen more significantly than foreign exchange. In the next few months, the implied volatility of the euro/dollar and USD/JPY will remain above 8% and 10% respectively, probably because the market believes that if some "liberation day tariffs" are re-implemented in July, foreign exchange will become the most sensitive asset class. It is reported that the EU is ready to accept that most of its exports to the United States will be imposed on 10% tariffs, and Washington seems to be trying to go to Japan. Pressure to open the U.S. rice export market. This may explain why the U.S. dollar/yen leads the dollar to fall overnight.
The tax reform bill on President Trump’s passing in Congress and its impact on U.S. fiscal situation was not seen as a major market driver this week. U.S. long-term Treasury yields remain sluggish, and the spreads between Treasury bonds and swaps remain stable. Perhaps more news about weak demand for Treasury bond auctions and rising inflation, or concerns about the president’s appointment of dovish people to replace Fed Chairman Powell, to make Treasury bonds a focus of the financial market again.
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