Wall Street firms as US dollar looks for direction

It’s a mad, mad world.  Yesterday, trade threats and tensions trashed Wall Street.  This morning, all is forgiven – or at least that is how it looked at the opening bell.  The Dow Jones Industrial Average (DJIA) opened with a pop touching 24,330.90 after closing on Monday at 24,262.91. The rally may not last the morning.  

President Trump has picked a fight with former “bestie” Harley-Davidson after the motorcycle manufacturer said they might move production overseas.  He tweeted “A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them.  If they move, watch, it will be the beginning of the end – they surrendered, they quit!  The Aura will be gone, and they will be taxed like never before!"

The president also tweeted a reminder that the study on tariffs on cars from the EU was almost completed. 

The US economic releases were second tier and a non-event. The Case-Shiller Home Price Index for April rose 6.8%, y/y.

FX markets are on the outside looking in. New York traders appear reluctant to drive EURUSD below the European session low of 1.1650 and prices have danced in a 1.1655–1.1683 since New York opened. Traders are looking ahead to tomorrow’s US durable goods orders data and then Eurozone data on Friday.

USDJPY continues to chop in a 109.30 110.00 range.  Trade tensions and soft US Treasury yields combined with bearish short-term technicals will continue to keep the focus on the downside.

Sterling is bouncing in a 1.3200-1.3320 range.  Broad US dollar strength, trade tensions and Brexit issues are weighing on the currency pair while a glimmer of hope for an August rate hike slows the losses.

Oil prices remain elevated despite the Opec announcement of production quota increases.  Supply disruptions in Canada, Libya, and Venezuela are supporting prices.

FX trading will remain subdued because of the lack of actionable economic data. Traders are also looking ahead to possible Thursday/Friday price volatility due to month-end and quarter-end portfolio rebalancing flow.  The US dollar index shows the greenback is merely consolidating gains while the index stays above 93.75.