A mini-collapse in oil on a negative OPEC+ output decision triggered correction in European equities and US equity futures. Rotation from stocks to bonds gathers pace as can be seen from the rapidly growing demand for long-term bonds, which until recently were massively ditched due to expectations of increased inflation. Investors are comfortable with nominal yield on 10-year Treasuries at 1.24%, however just 3 months ago they asked 1.75%:

DXY tested 93 points support today - this is the highest level since early April. Starting in the second half of June, the DXY made a series of higher pivot highs, with pullbacks getting shorter in length, indicating growing buying pressure. The pattern’s development culminated in breakout of medium-term resistance line after two failed tests:

Despite dollar getting solid foothold on Monday, USDJPY managed to drop, which is a clear-cut signal of growing risk aversion of Japanese investors, which traditionally sought yield opportunities abroad thanks to BoJ easing. The yen has risen in price against the dollar by about half a percent.

European indices unwound about 2.5% of recent gains which marked the strongest correction in several months.

OPEC has agreed to gradually ramp up production, adding 400,000 b/d per month starting in August until it removes the current 5.8 million b/d cap. The alliance will assess the production ramp-up strategy in December 2021 to determine the policy for the next year. Over the next 5 months, production will increase by 2 mb/d while the production cap will drop to 3.8 mb/d by the end of the year. OPEC also extended the deal to coordinate output of its members until the end of 2022.The oil market has been disappointed by the news, oil prices erased 3% on average, giving up more than a month of growth.

The ECB meeting is slated to Thursday. The outcome may be negative for the euro, as Lagarde announced earlier about upcoming strategic policy review. Any bearish shifts in strategy, be it a Fed-like average inflation targeting, will negatively affect euro exchange rate, as it did with the US dollar when the Fed made a similar announcement. Therefore, apart from downside pressure from risk aversion the risks for EURUSD are shifted towards this week with possible tests of fresh local lows. Downside potential is the level of 1.17350: