Away from US politics, FX markets remain very subdued. Volatility is low and the temptation will be to rotate back into carry even if there are risks associated with the preferred funding currency (Japanese Yen) or the preferred target currency (Mexican Peso), ING’s FX strategist Chris Turner notes.

DXY to continue trading in the 104.00-104.50 range

“On a quiet day, we think investors will take a keen interest in US earnings releases. Two of the Magnificent Seven (a basket of seven tech stocks, lost close to 8% this month) report second-quarter results. With surveys suggesting investors are expecting earnings results to drive the next leg in the equity rally. Tonight's release therefore will have a big say in whether the rally resumes.”

“Higher US equities normally keep traded FX volatility levels low and support the carry trade. Previously, this would have been USD negative, but USD deposit rates at 5.38% for one-week money means that USD is an expensive sell. These conditions do mean, however, that there is a large burden on the Bank of Japan to deliver a rate hike and a sizable reduction in Japanese government bond purchases on 31 July.”   

“The US calendar is pretty bare today and there doesn't seem to be a strong reason to take DXY out of a 104.00-104.50 range.”