Additional comments from Italian Prime Minister Giuseppe Conte continue to cross the wires as he addresses the Italian Senate. Below are some key quotes, per Reuters.

"Salvini trampled on measures for social welfare the government has approved."

"Salvini detached himself from the government after European elections, seeking pretext to bring it down."

"Dissolving parliament would block justice reform which would help make Italy more attractive to foreign investors."

"Worried by Salvini's threat to organise street protests if elections not called."

"Government crises must be resolved in parliament, not on the streets."

"League made him wait two months before being willing to discuss 2020 budget."

"Scandal over Russian funding of league needs clarifying."

"Salvini often interfered with the responsibilities of other ministers, hurting the government's effectiveness."

Additional comments from Italian Prime Minister Giuseppe Conte continue to cross the wires as he addresses the Italian Senate. Below are some key quotes, per Reuters.

"Italy now may be weakened in negotiations with the EU."

"Salvini followed personal and party interests."

"Salvini's moves show little sense of state."

"Country risks financial instability."

"Salvini acted with political opportunism."

"August political crisis paves the way for an autumn vote."

"Hard to reconcile Salvini's decision to present no-confidence motion but not withdraw League ministers from the government."

"Salvini's move offended both me and the League's ministers."

In the meantime, the EUR/USD stays flat on the day at 1.1075.

Mazen Issa, senior FX strategist at TD Securities, suggests that as the market awaits key Fed events in the minutes and the symposium this week, the broad USD is off to a firm start and it comes against a backdrop of suppressed Treasury (and global) bond yields.

Key Quotes

“We think this firmness can continue, at the very least on a tactical basis as we think the Fed will not be able to bridge the gap between aggressive easing priced into the curve and the Fed's definition of a "mid-cycle adjustment". As such, we see a risk that US yields adjust temporarily and tactically higher in the short-term in the coming days (a dynamic which we think will be met with inevitable demand).”

“We do not expect the USD to be immune to this adjustment and perhaps more durably than the rates market. There are some signs that the recent bid in the USD may persist for a while longer. For one, even with the rally in US 10s in recent weeks, the USD still remains the only game in town as far as carry is concerned (in the G10).”

“Dethroning this status will be very difficult to do without a return to aggressive balance sheet expansion we think. Here, the ECB is just much further ahead in this process. Taken in conjunction with US data surprises moving in the USD's favor only serves to reinforce its its allure (although still healthily stable on a y/y trade-weighted basis).”

“Further to this, option markets are pricing in a modest premium in USD calls, and, after leading the move lower against the USD earlier this summer (but in line with the move in US10s), both the EUR and JPY have begun to diverge from the recent drop in 10yr yields. This suggests to us that the market requires a fresh catalyst to compel upside in these currencies vs. the USD, neither of which – with some caveats in the JPY – is compelling at the moment.”

Nathan Janzen, senior economist at the Royal Bank of Canada, notes that Canada’s June manufacturing sales were on the soft side, declining 1.2% in total, but perhaps not quite as soft as feared given an earlier-reported sharp drop in exports for June.

Key Quotes

“Most of the headline manufacturing sales decline was due to a drop in prices, including a big 5% drop in petroleum and coal prices. The 0.2% dip in headline sales once controlling for price changes followed a 1.7% jump in May.”

“Overall in Q2, manufacturing sale volumes increased 7.3% (at an annualized rate) from Q1 and 2.9% from a year ago. We are still tracking a ~3% increase in overall Q2 GDP.”

Addressing the Italian Senate on Tuesday amid the political turmoil, Italian Prime Minister Giuseppe Conte said that the League party's decision to present a no-confidence motion was 'grave' and added that it will have consequences for the country.

Conte further added that Deputy Prime Minister (PM) Matteo Salvini has violated the initial commitment, and the League's move suddenly interrupted government's reforms.

Conte also noted that the budget will not pass in time following the League's action and that the may be forced to increase the VAT.

The shared currency's reaction to Conte's remarks is so far mixed with the EUR/USD pair trading flat on the day at 1.1075.

  • DXY navigates a tight range between 98.30/40.
  • Yields of the US 10-year note keep declining, near 1.56% now.
  • Markets’ attention remains on FOMC and Powell.

The US Dollar Index (DXY), which tracks the Greenback vs. a bundle of its main rivals, is alternating gains with losses on Tuesday around the 98.30/40 band.

US Dollar Index cautious ahead of Powell, looks to yields

The index keeps the multi-session rally well and sound above 98.00 the figure so far on Tuesday, although it has come under some downside pressure in response to shrinking US yields and fresh demand for safe havens like the JPY.

No news on the trade front has rendered the recent rhetoric by President Trump as innocuous, while investors appear to have re-shifted their interest to the money markets and the 2y-10y yield curve.

Nothing in the calendar other than the API report scheduled for later today and ahead of tomorrow’s Existing Home Sales and the EIA’s weekly report on US crude oil supplies.

What to look for around USD

The main focus this week will be on the Jackson Hole Symposium as well as on any hint on the Fed’s plan for the next months. In the meantime, trade concerns, while still unabated and in combination with the inversion of the yield curve, carry the potential to spark further ‘insurance cuts’ by the Federal Reserve and thus undermine the constructive prospects of the buck in the next months. Opposed to this view emerges the Greenback’s safe have appeal, the status of ‘global reserve currency’, so far solid US fundamentals vs. overseas economies and the less dovish stance from the Federal Reserve (as per the latest FOMC event).

US Dollar Index relevant levels

At the moment, the pair is gaining 0.05% at 98.41 and faces the next up barrier at 98.42 (high Aug.20) followed by 98.93 (2019 high Aug.1) and the 99.89 (monthly high May 2017). On the other hand, a break below 97.89 (21-day SMA) would aim for 97.21 (low Aug.6) and then 96.97 (200-day SMA).

Responding to EU officials remarks that they are not going to reopen the Withdrawal Agreement to negotiations, British Prime Minister Boris Johnson's spokesman stated that there is no prospect of a Brexit deal unless the backstop is abolished and the Withdrawal Agreement is reopened.

"We are ready to negotiate, in good faith, an alternative to the backstop," the spokesman said. "Irish foreign minister expressed concern to the UK Brexit minister at the lack of alternatives to the backstop in rime Minister's letter."

The UK's stance on Brexit is nothing new and markets largely ignored these headlines with the GBP/USD pair moving sideways in the negative territory near the 1.21 handle.

In an interview with CNBC, the US Secretary of State, Mike Pompeo, said that the threat of having Chinese telecommunication systems inside the United States' networks was 'an enormous risk,' and added that there had not been any mixed messages on Huawei technologies.

These comments don't allow the market sentiment to recover and the 10-year US Treasury bond yield was down 2.03% on the day at the time of press. Meanwhile, Wall Street remains on track to open the day with modest losses following Monday's sharp rebound.