E-Mini Futures Tick Higher As All Eyes Turn To Greenback This Week

E-minis are ticking higher in response to headlines that suggest fatalities fell in many states hit hard by the virus, including Florida, California, and Texas. At the same time, this is not wholly unexpected, but none the less the market has welcomed this as the best sigh of a relief rally in some time. Still, we are hardly out of the COVID woods just yet. As has been the case through this troubling flattening of the COVID curve since day one, investors and more so consumers which are driving the recovery bus will need to see a week or two of convincing drops in the curve to feel safe again.

For the oil markets, this is very encouraging in the weaker US dollar context, which is provided oil bulls with some added price insurance.

Not unexpectedly the euro is just above 1.1700 this morning as the cyclical economic momentum favors the Eurozone over the US at this phase of the global economic recovery and is bullish for the EUR/USD.

Eurozone PMIs rose sharply in July in response to the safe easing of mobility restrictions, with the composite index rising by 6.3 points to 54.8 - a two-year high - that indicates GDP growth is off to a solid start in Q3.

The upcoming FOMC meeting on July 29 could put further downward pressure on US real yields, driving USD weakness and further gains in gold prices. While traders universally are pricing in the policy to remain steady with Fed funds at 0, monthly UST purchases of $80bn, and MBS purchases of $40bn). But within the forward guidance, the FOMC could demonstrate a firmer commitment towards allowing above-target inflation to materialize for some time before the normalizing policy could further pressure real yields lower, undermining the dollar. The risk to this view is the absence of any material forward guidance from the Fed that drives real higher.

Indeed, it will be all about the US dollar this week and how the weaker greenback could influence global investment decisions even more so as US political headwinds in the context of US economic underperformance add another reason to sell USD.

For FX (particularly USD/CNH and AUD/USD), what matters more is whether political escalation morphs into an economic dust-up. Economic trade war escalation is equivalent to tariffs. There are no hints yet that either side is willing to squash the P1 trade deal. AUD and CNH should look good on the rebound trade from last weeks sell-off while the risk to that view is a full-blown pivot to trade war escalation