Forex Today: US Dollar holds steady ahead of mid-tier data, key earnings reports

Here is what you need to know on Tuesday, July 23:

The action in financial markets turns subdued early Tuesday, following Monday's choppy trading. The US Dollar (USD) holds steady against its major rivals as investors await Existing Home Sales data for June and Richmond Fed Manufacturing Index for July. After Wall Street's closing bell, Google (Alphabet), Tesla and Visa will be among top companies that will report second-quarter earning reports.

US Dollar PRICE This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.00%	-0.06%	-0.53%	0.39%	0.89%	0.85%	0.23%
EUR	-0.00%		-0.07%	-0.56%	0.34%	0.93%	0.79%	0.16%
GBP	0.06%	0.07%		-0.59%	0.40%	1.00%	0.84%	0.21%
JPY	0.53%	0.56%	0.59%		0.95%	1.50%	1.34%	0.69%
CAD	-0.39%	-0.34%	-0.40%	-0.95%		0.59%	0.46%	-0.17%
AUD	-0.89%	-0.93%	-1.00%	-1.50%	-0.59%		-0.14%	-0.78%
NZD	-0.85%	-0.79%	-0.84%	-1.34%	-0.46%	0.14%		-0.59%
CHF	-0.23%	-0.16%	-0.21%	-0.69%	0.17%	0.78%	0.59%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

The USD Index closed the first trading day of the week modestly lower as risk flows dominated the action in the second half of the day. Meanwhile, the benchmark 10-year US Treasury bond yield edged higher above 4.2%, helping the currency limit its losses. Early Tuesday, the USD Index holds above 104.00, US stock index futures trade modestly lower and the 10-year yield fluctuates near 4.25%.

EUR/USD posted small gains on Monday but failed to clear 1.0900. The pair trades in a tight channel below this level in the European morning on Tuesday. Later in the day, the European Commission will publish the preliminary Consumer Confidence Index data for July.

GBP/USD fluctuated in a tight channel above 1.2900 on Monday and closed the day marginally higher. The pair struggles to gather recovery momentum on Tuesday and trades in the red, slightly below 1.2920.

USD/JPY stays on the back foot after registering losses on Monday and was last seen trading in negative territory at around 156.50.

AUD/USD lost more than 0.6% on Monday and extended its slide during the Asian trading hours on Tuesday. At the time of press, the pair was trading at its lowest level in three weeks below 0.6630.

Following a quiet European session, Gold lost its traction during the American trading hours on Monday and dropped below $2,400. XAU/USD finds it difficult to stage a rebound early Tuesday and holds slightly above $2,390.

Risk sentiment FAQs

What do the terms'risk-on' and 'risk-off' mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is 'risk-on'?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is 'risk-off'?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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