Futures on major US stock indices opened today's trading day in positive territory, continuing the growth that emerged last week—on June 16, the US broad market index S&P 500 reached a local support level of 3645.0, falling from 4810.0, reached at the very beginning of this year.
One of the factors that contribute to the growth of stock indices is probably the balancing of the portfolio by investment fund managers at the end of the month, quarter, and half-year, and this week, the transition between June and July, the 2nd and 3rd quarters and the 1st and 2nd half-years. In view of this, it is possible that the corrective upward dynamics in the stock market will remain in force until the end of this week. This, in turn, will contribute to the weakening of the dollar.
As of this writing, futures for the dollar index (DXY) are trading near 103.62, 194 points below the local multi-year high reached in the middle of this month at 105.56.
Nevertheless, we should still expect the dollar to strengthen and the DXY index to grow. The main driver here is the Fed's monetary policy, the most stringent (at the moment) in comparison with other major world central banks. A breakdown of the local resistance level 105.56 will open the way for the DXY index towards multi-year highs and the mark of 121.00, reached in the summer of 2001.
After the release of a series of weaker important macro data, market participants are beginning to re-evaluate the plans of the Fed and the prospects for its monetary policy, but the demand for the safe dollar remains at a high level. Speaking before the House Committee on Financial Services on Thursday, Fed Chairman Jerome Powell reaffirmed that "an unreserved commitment" to fighting inflation and trying to "moderate demand so inflation can come down" remains a top priority for US central bank officials. He also said that "the Fed could continue aggressive tightening even if economic activity slows down sharply."
The prospect of further tightening of the Fed's monetary policy creates prerequisites for further strengthening of the dollar and the fall of the US stock market.
As of this writing, the S&P 500 CFDs are trading near the 3931.0 mark, trying to gain a foothold in the zone above the 3860.0 support level. The immediate target, in case of continued growth, is the marks near the resistance level of 4040.0.
As for the news for today, market participants will be waiting for the publication (at 12:30 GMT) of fresh data on orders for durable goods and capital goods (excluding defense and aviation) in the US.
As expected, the growth of such orders slowed sharply in May (to 0%), from +0.5% and +0.4% in April, respectively. The market reaction to the negative value of the indicators may be negative for the dollar in the short term. Data worse than the previous value and/or the forecast will also have a negative impact on dollar quotes, which, in turn, may support quotes of futures for US stock indices, although the slowdown in the economy is also not a positive factor for the stock market.
A little later (at 14:00 GMT) statistics on the number of pending home sales in the US for May will be published. This indicator shows the change in the number of houses prepared for sale, but still waiting for the contract to close. This is one of the most important indicators for the US real estate market, which also characterizes activity in the construction sector of the economy, and the sale of a house causes a wide-ranging associated effect: repairs, mortgages, brokerage and banking services, transportation, etc.
This is also expected to worsen. A weak result and a relative decline usually have a negative impact on the USD.
Despite the current upward correction, in general, the negative dynamics of the S&P 500 and the entire American, and rest of the stock market, remains. Investors prefer the safe dollar.