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Non-agricultural benefits are positive, + geopolitical tensions are heating up, but the dollar has fallen? What is the market trading?
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: Non-agricultural profits are strong, + geopolitical warming, but the US dollar has fallen? What is the market trading?" Hope this helps you! The original content is as follows:
As the conflict between the United States and Iran continues to ferment, ceasefire negotiations have become a core variable in the market.
According to Axios citing U.S., Israeli and regional sources, the United States and Iran are negotiating a 45-day temporary ceasefire agreement with regional mediators, which may help end the conflict;
Washington and Tehran have both received a two-step plan to end hostilities, which may take effect as early as Monday and reopen the Strait of Hormuz. Iranian Foreign Ministry spokesman Ismail Baqai said that Tehran has formulated a diplomatic response to the United States and will announce it in due course.
Previously, U.S. President Trump issued an ultimatum, saying that if the Strait of Hormuz failed to reopen before 8 pm EST on Tuesday and the two sides did not reach an agreement, they would attack Iran's power plants and other civilian infrastructure.
Although there is still uncertainty about the implementation of the final agreement, continued diplomatic efforts have significantly eased market panic about the escalation of the conflict, and global risk appetite has gradually recovered. The U.S. dollar weakened, and gold stabilized and rebounded but the upward trend was limited
Supported by the improvement in risk sentiment brought about by the U.S.-Iran ceasefire negotiations and the weakening of the U.S. dollar, gold stabilized and rebounded on Monday. Spot gold (XAU/USD) has gradually recovered from the intraday low of around US$4,600 per ounce. As of press time, it was trading at approximately US$4,674 per ounce, with rebound momentum initially showing.
However, gold’s upside is still suppressed by expectations of Federal Reserve policy.
U.S. non-farm payrolls data last week were stronger than expected, continuing to cool the market’s expectations for an interest rate cut by the Federal Reserve. With the geopolitical situation easing, the market is increasingly betting that the Federal Reserve will maintain high interest rates.If the market remains stable for a longer period of time, it may even start to raise interest rates.
The U.S. bond yield curve maintained a bearish trend. During the Tokyo session, U.S. bonds first rebounded slightly due to hopes for a ceasefire and then fluctuated lower. The rising yields limited the appeal of non-interest-bearing gold, making it difficult to escape the range-bound pattern in the short term.
The U.S. dollar is gaining momentum but is weakening in the opposite direction, and the U.S. dollar is showing an abnormal performance
Today’s trend of the U.S. dollar can be called “abnormal”, showing an obvious feature of “profits are not rising”.
From the perspective of supporting factors, last week’s higher-than-expected non-agricultural data, rising U.S. bond yields, and safe-haven demand amid geopolitical risks should have jointly supported the strength of the U.S. dollar;
At the same time, swap spreads opened slightly wider on Monday (except for the 2-year term), and short-term interest rates and swap rates more fully priced in interest rate cut expectations, theoretically further strengthening the support for the U.S. dollar.
However, in the actual trend, the US dollar has weakened in the opposite direction. The core logic lies in the market's pricing of Trump's "TACO" (TrumpAlwaysChickensOut) strategy.
Investors generally believe that there is a high probability that the United States will not really escalate the conflict with Iran, the geo-risk premium will gradually fall, and the safe-haven demand for the U.S. dollar will be significantly weakened.
Even if non-agricultural data and U.S. bond yields provide fundamental support, market bets on "the easing of the U.S.-Iran conflict" still dominate the trend of the U.S. dollar, causing it to continue to weaken despite bullish factors.
The market is betting on the US "TACO", but oil prices will remain high
In sharp contrast to the weakening of the US dollar, oil prices have started to rebound continuously during the day, and the market generally expects them to remain high for a long time.
Even if investors bet that the United States will eventually choose "TACO" and the U.S.-Iran conflict cools down, oil prices will be difficult to return to pre-war levels: On the one hand, the Strait of Hormuz is the core channel for global energy transportation, and its navigation risk has become a long-term pricing factor. The situation in the Middle East is potentially unstable. Certainty will continue to provide support for oil prices;
On the other hand, supply-side constraints such as OPEC+ production cuts and Russia's refined oil export ban have not yet been lifted. Added to the potential impact of war on regional energy infrastructure, the tight global energy supply pattern will be difficult to alleviate in the short term.
This expectation means that even if the United States avoids escalating the conflict, global inflationary pressure will not substantively ease, but may instead form "inflation stickiness" due to high oil prices.
This xmmarkets.cnbination of "U.S. retreat but high inflation" has a dual impact on gold: a weaker U.S. dollar should be good for gold prices, but high interest rates and continued inflation concerns will push up real yields, which will continue to suppress the performance of non-interest-bearing gold.
Short-term focus: Inflation data + negotiation progress, market gaming intensifies
In the short term, market trends will be mainly controlled by two major variables: First, U.S. economic data and Federal Reserve policy signals. The Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) price index to be released this week will further clarify the inflation outlook and provide clues to the path of the Federal Reserve’s monetary policy. On Monday, the U.S.The ISM Services Purchasing Managers Index (PMI) released later in the European session will also trigger short-term fluctuations;
The second is the substantial progress in the US-Iran ceasefire negotiations. If the agreement is implemented, the US dollar may weaken further and gold is expected to continue to rebound; if the negotiations break down and the conflict escalates, the US dollar's safe-haven attribute will return, and gold will need to xmmarkets.cnpete with the pressure of safe-haven demand and high interest rates.
No matter what the outcome of the negotiations is, the pattern of high oil prices will be difficult to change in the short term. The expectation of global central banks to "maintain high interest rates for longer" will still be the core resistance to gold's upward trend. In the future, we need to focus on the marginal changes in inflation data and geopolitical dynamics.
The above content is all about "[XM Foreign Exchange Market Analysis]: Non-agricultural profits are strong, + geopolitical warming, but the U.S. dollar has fallen? What is the market trading?" It is carefully xmmarkets.cnpiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
Due to the author's limited ability and time constraints, some contents in the article still need to be discussed and studied in depth. Therefore, in the future, the author will conduct extended research and discussion on the following issues:
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