The "life and death line" of the US dollar index is in a hurry! Fed nomination risk increases

On the Asian session on Thursday, the U.S. dollar index hovered above the 98 mark, the U.S. dollar fell on Wednesday, and the euro hit a weekly high as traders bet on the Fed's rate cut this year will exceed previous expectations after job data in July. Traders continue to focus on the impact of last Friday’s job report as there were no important U.S. economic data released on Wednesday. U.S. job growth in July was lower than expected, while non-farm job growth in the first two months was significantly revised down by 258,000, indicating a sharp deterioration in labor market conditions.

Analysis of major currencies

U.S. dollar: As of press time, the US dollar index hovered around 98.26, and on Wednesday (August 6), the US dollar index continued its recent weak performance. Market sentiment is affected by a vifu.netbination of multiple factors, including expectations of progress in the Fed’s nomination, Trump’s recent remarks about tariffs, and weak U.S. economic data. The US dollar index shows signs of oversold technology, but fundamental uncertainty still dominates market sentiment. This article will vifu.netbine the latest market trends to deeply analyze the current trend of the US dollar index from the two dimensions of fundamentals and technical aspects, and make an outlook on future trends. At the technical level, the US dollar index is currently showing a clear weak pattern. According to the latest data, the US dollar index failed to stabilize effectively after falling below the 61.8% Fibonacci retracement level (98.3086), indicating that bear momentum still dominates. The relative strength indicator (RSI, cycle 14) is currently at 35.0472, which is close to the oversold area, implying that there may be a technical repair market in the short term. At the same time, the lower rail of the Bollinger band has been broken down, and the MACD fast and slow line is entangled below the zero axis, indicating that the market momentum is relatively short, but the possibility of short-term correction is increasing.

Euro: As of press time, the euro/dollar hovered around 1.1652. On Wednesday, the euro/dollar rose by more than 0.50%, as traders began to expect the Fed to cut interest rates, and the dollar generally weakened. In addition, with U.S. President Trump saying he would nominate Fed Director Adrianna Coogler's successor, market concerns about the Fed's independence have intensified, and Kugler will resign on August 8. Judging from the K-line chart, the trend has fluctuated weakly since the euro/dollar fell below the Bollinger middle track in late July. The current price is running below the Bollinger middle track (1.1652) and is close to the Bollinger lower track (1.1444), reflecting that although the downward trend has slowed down, it has not been reversed.

GBP: As of press time, GBP/USD hovered around 1.3350. On Wednesday, GBP/USD fluctuated narrowly near the 1.3300 mark. The exchange rate sideways consolidation state continued for several days, and the market entered a typical waiting mode before news. Traders' focus is on two major events this week: the Bank of England's interest rate decision and potential policy direction changes brought about by personnel changes in the Federal Reserve. Technically, before the Bank of England’s resolution and the Federal Reserve’s personnel implementation, the exchange rate may remain fluctuating and consolidating within the range of 1.3185–1.3346. Analysts believe that if the central bank's tone is biased, the pound will face certain downward pressure in the short term, and the exchange rate may test the key support of 1.3140;

Summary of news from the foreign exchange market

1. Federal Reserve Director Cook: The correction of non-farm employment data may indicate a turning point in the US economy

Fed Director Lisa Cook called the July employment report "worrying" and said that this may indicate a turning point in the US economy. "These revisions are somehow typical of turning points," Cook said in a discussion by the Boston Fed on Wednesday. Data released last week showed a sharp drop in the labor market over the past few months. According to a report released by the U.S. Bureau of Labor Statistics, non-farm employment increased by 73,000 in July, after data in the previous two months was significantly revised by nearly 260,000. The unemployment rate rose slightly to 4.2% from 4.1% in June.

2. Japan's political dilemma puts 30-year treasury bond bidding to test

Japan's rising political and fiscal uncertainty may put pressure on demand for 30-year treasury bond bidding on Thursday. This bond issuance will become an important test for the market to test long-term bond demand, and traders expect the results of this auction to be more cautious. The tender coincides with the Liberal Democratic Party meeting on FridayInvestors are paying close attention to whether there will be political restructuring and its accompanying fiscal impact. Ryutaro Kimura, senior fixed income strategist at AXA Investment Management, said: "It is unlikely that there will be radical bids in this treasury bond bid. If Shigeru Ishiba cannot obtain support from members of the Liberal Democratic Party MPs, market concerns about large-scale fiscal expansion may intensify, resulting in a further increase in ultra-long-term yields." The results of this bidding are expected to be announced at 11:35 Beijing time. Investors will focus on the bid multiple of the key demand indicators, with the previous bid multiple of 3.58, higher than the average level in the past 12 months.

3. The Swiss federal president is about to leave. The United States is expected to fail to make progress on the trade agreement. According to people familiar with the matter, the Swiss federal president is about to leave Washington but has failed to make any progress in reducing Trump's 39% tariffs on Switzerland. The person said the Swiss delegation led by federal president Karin Keller-Zuitel has made a new proposal to U.S. officials but is not expected to win a better deal for Switzerland before leaving the United States. Keller Zutel met with U.S. Secretary of State Rubio earlier that day and discussed the Swiss proposal, people familiar with the matter said. She said the two sides had exchanged on bilateral cooperation, tariffs and international affairs, but did not disclose details. It is worth noting that Rubio is not responsible for bilateral agreement affairs. It is not clear whether she will try to meet with Trump before leaving. Considering that Keller Zutt went to the United States without the invitation of the White House, such a meeting was originally difficult to achieve.

4. Kashkali joins the ranks of Federal Reserve officials who tend to cut interest rates in September

Feder Kashkali said on Wednesday that it may be the time to cut interest rates soon. In an interview with vifu.netBC, Schkali said it may take a year or more to know whether the new tariffs imposed by the White House on trading partners will trigger ongoing inflationary pressures. Meanwhile, the data at hand clearly shows that the U.S. economy is slowing down. "It tells me that as a policymaker, I need to start relying more on data that I have confidence in. The economy is slowing, which means that in the short term, it may be appropriate to start adjusting the federal funds rate." Kashkali's remarks suggest that more and more people support the Fed's rate cut in September. San Francisco Fed Chairman Daley said on Monday that the time for a rate cut is near and more than two may be needed this year. The Fed has three more policy meetings this year.

Institutional View

1. Dutch International Group: Shocking employment data may prompt the Federal Reserve to cut interest rates

Dutch International Group Chief International Group Economist James Knightley wrote in a research note: "Last Friday's U.S. employment report sounded the alarm bell" and should prompt Fed monetary policy makers to take more rapid action. Revised data released last week showed that the U.S. job market is not as strong as people once thought, with recruitment activities in the summerSlowed sharply. Coupled with increasingly pessimistic business investigations, this should prompt the Fed to take faster action. Fed rate makers may agree that they should start cutting rates at their September meeting; in which case the Fed may continue to cut rates at subsequent meetings. Changes at the Fed's top leaders next year may lead to faster rate cuts.

2. Capito Macro: Eurozone retail sales will continue to be sluggish

Capito macroeconomist Andrew Kenningham said that the eurozone retail sales rose slightly in June, but were still far lower than the pre-epidemic trend, and the sluggish sales may continue. Retail sales rose 0.3% month-on-month in June, slightly lower than general expectations. "Looking forward, while lower interest rates will boost consumption this year, this will be partially offset by a slowdown in real income growth," he said in a report. Although consumer confidence has recovered, it is still at a low level vifu.netpared to historical standards. This suggests that household savings will continue to exceed pre-pandemic levels and overall consumption growth may be quite moderate.

3. Strategist: The Bank of England may cut interest rates again before the end of the year after Thursday's interest rate cut.

Jeremy Batstone-Carr, strategist at Raymond James InvestmentServices, said in a report that the Bank of England may cut interest rates again before the end of the year after making an interest rate decision on Thursday. According to LSEG data, the market believes that the probability of a rate cut this week is 96%. Taxes are expected to increase in the UK in the fall budget, which could limit the spending capacity of households and businesses. The Bank of England may want to choose a monetary policy to relieve the pressure on households and businesses, although that will take until later this year.

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