With the increasing uncertainty in the markets, the US stock indices failed to continue the uptrend. Given that stock futures of major world indices are holding near record highs, and there are no new drivers for further growth, the bullish momentum may soon lose its steam.
The US dollar is unlikely to rebound anytime soon amid a number of negative factors. First of all, traders are disappointed by the economic statistics and, in particular, by the data on the US economy. Thus, retail sales in July fell short of estimates. Due to the increase in COVID-19 cases, this indicator may drop even further. The downbeat data on consumer activity signals that the US economic recovery has slowed down.
In addition, US lawmakers still have not reached an agreement on a new stimulus package to support the US economy. Now, lawmakers in Congress have left for August recess without a deal for the next coronavirus relief package. So, the negotiations are put on halt until September. This stalemate in the US fiscal policy puts additional pressure on the American currency.
Moreover, the uncertainty around US-China trade relations serves as another bearish factor for the dollar. The meeting on a trade deal, which was scheduled for August 15, was postponed without confirmation of a new date. Meanwhile, Donald Trump issued an executive order forcing Chinese company ByteDance to stop its US TikTok business activity within 90 days. He also made it clear that similar measures could be applied to other Chinese companies, including Alibaba. Further escalation of tensions between the two economic giants is causing concern among investors. The US-China trade conflict is sure to affect the pace of global economic recovery, including the one of the US.
Currently, Democrats and the Trump's administration have a conflicting view on a number of issues. One of them is voting by mail, which is strongly opposed by Donald Trump. Democrats fear that this will put pressure on the postal service. There were suggestions to call the lawmakers back from summer leave in order to avoid cuts in postal service funding.
This week, investors will be closely watching the dollar index trajectory. The downtrend in the US currency is going on for the fifth session in a row, and the greenback is at risk of testing the mark of 92.47, the lowest level in 2.5 years.
On Monday, the downward short-term trend in the US currency strengthened. In the long term, the upward trend may start at 92.85. All this time, DXY has been holding firmly near this level. However, today during the New York session, the dollar broke through it. Currently, it is not the best strategy to rush with long positions on the US dollar, at least for now.
There has been a noticeable change in how Forex speculators are placing positions. They continue to bet further on the euro's rise at the expense of the US dollar. Thus, the net position of hedge funds in USD futures fell significantly. The last time when major players were net short on the US dollar was two years ago.
The American currency came under pressure in late March when the Fed promised unlimited liquidity to support the economy hit by the coronavirus. Since then, the greenback has been depreciating due to low interest rates and the fall in 10-year Treasury yields to record lows.