The U.S. dollar index started near 89.70 in 2021 and then bottomed out at 89.20. It peaked at 93.43 at the end of the quarter and fell back to near 89.50 at the end of May to start a strong rebound. In just one month, it returned to level 92 and end the first half of this year by 92.35. In July, the U.S. dollar consolidated above 92 and once rose above the 93 level. Inflation continued to rise. In June, inflation rose the most in 13 years, but it did not change the mainstream opinion of the Federal Reserve. The bureau reiterated that price increases should be temporary. President Biden also held the same view and asked the Fed to fully support the economic recovery. Judging from recent data, under the stimulus of monetary and fiscal policies, the momentum of a strong economic rebound may have peaked, and economic growth in the third quarter is likely to slow down compared to the previous quarter. 

As commodity prices, including energy, have fallen, the market’s worries about the threat of inflation have also eased. The expectations for the Federal Reserve to raise interest rates next year have also fallen significantly. The decline in the 10-year US Treasury has continued, and it once fell to around 1.13%. However, it did not have much impact on the US dollar. The author believes that the recent strength of the US dollar is mainly due to the problems of other non-US currencies, and the impact of the spread of the Delta variant virus is also very important. The European economic recovery has already lagged behind the United States. The central bank kept interest rates unchanged after the latest meeting and promised to stay at a record low for a longer period. At the same time, the inflation target was changed from "below but close to 2%" to 2%, which means will tolerate inflation exceeding the target level. The central bank stated that it will not increase the cost of borrowing to ensure the momentum for economic recovery. 

On the other hand, the European region is affected by the Delta variant virus, and the number of confirmed cases hit a new high. The market is worried that countries may implement lockdown measures later, and the central bank does not rule out the need to buy more debt to support the economy. The technical trend shows that the support level of the euro at 1.17 is very important. Before writing, I tried to challenge the MA20 1.1830, but it failed. The short-term may fluctuate between 1.1700 - 1.1850. It is worth paying attention to the RSI of the euro’s daily chart is diverging from the exchange rate trend, and the U.S. dollar index also has the same situation. Beware of the euro’s counterattack. On the other hand, 93.50 is the high point of the US dollar's rebound this year. If it breaks through, it will be a double-bottom and top-break pattern, which can lead to a new round of rising waves for the US dollar. The author tends to bet on a rebound in the euro, buy near 1.1750, stop loss at 1.1680.

Patrick Law General Manager of Hantec Group