Will USD Rally Continue This Week?
Bonds Under Pressure
The US Dollar is on watch at the start of the week as traders nervously eye the sell-off in bond markets amidst higher treasury yields. Last week, US inflation was seen soaring higher to 3.8% from 3.3% prior, above the 3.7% the market was looking for. Now back at 3-year highs, inflation is becoming a bigger challenged for the Fed with traders now worrying that the bank is behind the curve given that it is still trying to maintain a dovish stance.
Hawkish Fed Voting Shift
However, at the last meeting there were some hawkish developments with three dissenters looking for the Fed to leave behind its dovish stance. The growing view now is that the Fed will be forced to turn more hawkish given this latest inflation data and energy prices remaining at elevated levels. For stocks, this raises the risk of a firm reversal lower, particularly on the back of the heavy rally we’ve seen off the March lows.
Iran War
Near-term, focus too will be on incoming headline around the Iran war. If negotiations remain stalled and the Strait of Hormuz remains closed, oil prices will stay higher, keeping inflation elevated. In this scenario, Fed rate-hike expectations will rise further, leading USD higher and putting pressure on stocks. However, if we get a breakthrough in negotiations and traders sense a deal is coming, this could fuel a fresh move higher in stocks as crude and USD come off.
Technical Views
DXY
The breakout from the falling wedge pattern has stalled for now around the 99.15 level. With momentum studies bullish here, focus remains on a continuation higher with 100.36 the next bull target. If we drop lower, 98.24 will be the key support level to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.