DXY: dollar continues to dominate


The dollar continues to dominate the financial market, and today's correction, observed during the Asian trading session, so far only provides additional opportunities to increase long positions on it.

As we noted in our recent review, "risk avoid and the Fed's monetary policy, which remains the tightest among the world's major central banks to date, are the main drivers of dollar growth."

Yesterday, after the publication of the minutes from the June Fed meeting, the dollar index DXY broke through another "round" mark of 107.00, updating its almost 20-year high at 107.07.

Today (at the time of this article) DXY futures are traded near 106.87 mark, slightly lower during the Asian trading session, but with room for further gains. A re-break of the 107.00 mark will be a signal to increase long positions in DXY futures with the prospect of growth towards multi-year highs of 121.29 and 129.05, reached, respectively, in June 2001 and November 1985.

DXY Chart

From a fundamental point of view, so far everything is going exactly according to this scenario (expectations of further strengthening of the dollar), and the main factor here is the Fed's monetary policy, as we noted above, the most stringent (at the moment) in comparison with other major world central banks.

According to the minutes of the June FOMC meeting released on Wednesday, the Fed will raise rates by 50 or 75 basis points in July: high inflation justifies "restrictive" interest rates, with the possibility of a "more restrictive stance" if inflation stay at high levels. Kansas City Federal Reserve Bank President Esther George was the only one of the 12 "voting" members of the FOMC who did not support the 75 basis point increase in June.

At the same time, the Fed understands the growing inflationary risks, as well as the gradual deterioration of the situation on the labor market.

In this regard, market participants will carefully study today's weekly report of the US Department of Labor with data on the number of applications for unemployment benefits and the monthly report on the US labor market for June, which will be published at 12:30 (GMT), today and tomorrow. Strong figures are expected, while US unemployment will remain at a multi-year low of 3.6% for the 4th month in a row. The data indicate a stable state of the US labor market, which is one of the criteria for the leaders of the Fed in determining the parameters of the US central bank's monetary policy.