USD: Some modest retracement – ING

The dollar is continuing its positive correlation with US equity markets and is edging higher. Investors seem to be taking positively the newsflow that US-China tariffs could be negotiated substantially lower. For example, equities have rallied a little on the news overnight that China could cut their own 125% tariffs on US goods from certain sectors such as healthcare, aviation and manufacturing, ING's FX analyst Chris Turner notes.

DXY can head back to the 100.25/50 area

"Even though Chinese self-interest may well be driving these developments, investors are still welcoming some flexibility here. Equally, investors seemed to ignore bearish headlines from China yesterday that there was no US-China trade dialogue underway and that it would be the US which would have to make the first unilateral move to cut tariffs."

"As to the USD more broadly, it could find a little support as trade tensions calm a little. The next big chapter here will be whether all this volatility has hit real world decisions. There is plenty of US jobs data released next week and any deterioration here could trigger another round of dollar losses - albeit a more benign dollar decline on the view that the Federal Reserve would be riding to the rescue after all. In terms of Fed pricing, the market now seems comfortable to price the first cut in July."

"For today, US equities are being called a little higher after some good results from Alphabet. DXY could head back to the 100.25/50 area but stall there. Keep a close eye on the S&P 500, where any close above the 5570/5600 area could suggest we're seeing something more than a bear market correction."