The dollar index (DXY00) fell from a 2-month high on Monday, finishing down 0.06%. The dollar gave up overnight gains and finished slightly lower on Monday after stocks pushed higher, which curbed liquidity demand for the dollar. Also, crude prices fell from early highs on Monday and dragged the dollar lower on reduced safe-haven demand after Iran signaled an end to its current military operations against Israel and President Trump said the two sides were looking to agree to an immediate ceasefire.
The dollar initially moved higher on Monday on carryover strength from last Friday's stronger-than-expected US May payroll report, which bolstered speculation that the next Fed move will be an interest rate increase. Also, renewed fighting between Iran and Israel boosted some early safe-haven demand for the dollar after Israel said it struck several military targets in Iran today, retaliating against missile attacks by Iran.
The swaps markets are discounting the odds at +3% for a +25 bp rate cut hike at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) recovered from a 2.25-month low on Monday and rose by +0.08%. The euro moved higher on Monday after weakness in the dollar spurred short covering. The euro also garnered support from Monday's stronger-than-expected Eurozone Jun Sentix investor confidence index.
The euro initially moved lower on Monday after crude oil prices briefly jumped more than 4%, which is negative for the Eurozone economy and the euro, as Europe imports most of its energy. Also, Monday's weaker-than-expected German April factory orders report was bearish for the euro.
The Eurozone Jun Sentix investor confidence index rose +3.0 to -3.4, stronger than expectations of -14.0.
German Apr factory orders fell -3.8% m/m, weaker than expectations of -2.0% m/m.
The markets are discounting a +100% chance for a +25 bp rate hike by the ECB at the next policy meeting on Thursday.
USD/JPY (^USDJPY) on Monday fell by -0.02%. The yen recovered from a 5-week low against the dollar on Monday and moved slightly higher on stronger-than-expected Japanese economic reports on Q1 GDP and the May Eco Watchers Outlook Survey. Also, the closer the yen falls to 160 per dollar, the greater the likelihood that Japanese authorities will intervene in forex markets to prop up the yen, as they have done several times recently when the yen fell below that level.
The yen initially moved lower on Monday amid early dollar strength and a brief +4% surge in crude oil prices, which are negative for Japan's economy and the yen, as Japan imports more than 90% of its energy.
The Japan May Eco Watchers Outlook Survey rose +1.3 to 40.7, stronger than expectations of 40.1.
Japan's Q1 GDP was revised downward to 1.8% (q/q annualized) from 2.1%, stronger than expectations of 1.4%.
The markets are discounting an +88% chance of a +25 bp BOJ rate hike at the next policy meeting on June 16.
August COMEX gold (GCQ26) on Monday closed down -1.90 (-0.04%), and July COMEX silver (SIN26) closed down -0.518 (-0.75%).
Gold and silver prices on Monday added to last Friday's sharp losses, falling to 2.5-month lows. Precious metals were weighed down by some negative carryover from last Friday's stronger-than-expected US May payroll report, which bolsters the outlook for a Fed rate hike, a bearish factor for precious metals prices. Also, Monday's stock market recovery has reduced safe-haven demand for precious metals.
Precious metals losses were limited on Monday amid a weaker dollar. Also, precious metals still have safe-haven support as the US and Iran have made little progress in talks over an interim peace deal, with clashes between Israel and Hezbollah militants ongoing in Lebanon.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 5.5-month low on March 31 after climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 9.75-month low on Thursday after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China's PBOC reserves rose by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC has boosted its gold reserves.
