The financial markets showed a subdued start on Tuesday after a choppy trading session on Monday. Investors are keeping a close eye on the US Dollar (USD) as they await key data releases such as Existing Home Sales for June and the Richmond Fed Manufacturing Index for July. In addition, second-quarter earnings reports from major companies like Google (Alphabet), Tesla, and Visa are expected after the closing bell on Wall Street. The USD remained relatively steady against its major counterparts, with the Aussie Dollar being the weakest currency.
The USD Index closed slightly lower on Monday but managed to hold above key levels on Tuesday. The benchmark 10-year US Treasury bond yield also edged higher, helping support the USD. As a result, the USD Index remains above 104.00, while US stock index futures trade modestly lower. The EUR/USD pair made minor gains but struggled to breach the 1.0900 level, trading in a narrow range below it on Tuesday. The GBP/USD pair also faced challenges in gaining momentum and traded slightly below 1.2920.
On the other hand, the USD/JPY pair remained under pressure after experiencing losses on Monday. The pair was seen trading in negative territory around 156.50. The AUD/USD pair suffered losses of over 0.6% on Monday and continued its decline during Asian trading hours on Tuesday. The pair was trading at its lowest level in three weeks below 0.6630.
Gold prices lost ground during the American trading hours on Monday, dropping below $2,400. XAU/USD struggled to recover early on Tuesday and held slightly above $2,390. Investors are closely monitoring risk sentiment in the markets, with terms like “risk-on” and “risk-off” being widely used. During a “risk-on” market, investors are optimistic about the future and more willing to take risks, leading to gains in stock markets, commodities (except Gold), and currencies of commodity-exporting nations.
Conversely, in a “risk-off” market, investors adopt a cautious approach, favoring safe-haven assets like Bonds, Gold, and currencies such as the Japanese Yen, Swiss Franc, and US Dollar. Major currencies that tend to rise during “risk-off” periods include the USD, JPY, and CHF, due to their safe-haven status. On the other hand, currencies like the AUD, CAD, NZD, as well as minor FX like the RUB and ZAR, tend to strengthen during “risk-on” periods due to their reliance on commodity exports for economic growth.
