DXY Index, US Dollar, Fed, FOMC, US CPI, Crude Oil – talking points
- USD underpinned by higher yields across the curve on upcoming Fed action
- `AC Shares lower as the reality of the cyclical peak in loose policy becomes apparent
- all eyes open US CPI data.WSick the DXY index breaks the upper resistance?
The US dollar continues to rise after a Fed now focused on fighting inflation. US CPI is due later in the day and the headline yoy count is expected to come in at 8.4% with the core figure expected to come in at 6.6%.
The consequences of higher borrowing costs are circulating Markets where stocks and bonds sold off at the same time. the ancient saying, “Sell in May and go away, cCome back on St. Leger’s Day.” could have arrived a month earlier.
This is largely due to the ongoing procession of Fed speakers voicing their hawkish credentials. Last night it was the turn of Chicago Fed President Charles Evans, who opened up the potential for a 50 basis point hike at the next Federal Open Market Committee (FOMC) meeting in May.
As a result, the entire Treasury curve has been shattered as yields rise. The 2-year and 10-year benchmark bonds are at 2.54% and 2.82%, respectively, at press time. This is a long way from the inversion between the two to earlier this month.
There has been speculation in some parts of the market that if the Fed plans to reduce its balance sheet, the 10-year portion of the curve could be the starting point.
APAC cash stocks were all lower, following Wall Street’s lead. Futures markets point to a negative start for the US.
Crude oil recouped some of yesterday’s losses, with both WTI and Brent crude futures contracts up about 2% in Asian trading today.
Gold has held on to its recent gains, currently just under US$1960 an ounce.
The US Dollar Index (DXY) has been gaining every day this month, but overall FX markets in Asia have been fairly calm.
The Swiss franc’s notable appreciation against the Japanese yen in the previous session. The oil-dependent Norwegian krone pared some of yesterday’s losses in line with the recovery in crude oil.
Looking ahead, US CPI will take center stage, but markets will also follow the release of OPEC’s monthly oil report and Fed spokesmen Brainard and Barkin will make headlines.
The full economic calendar can be viewed here.
DXY (USD) Index Technical Analysis
The US Dollar Index, represented by the DXY Index, continues to rise and may test resistance at the April and May 2020 highs of 100.556 and 100.931 respectively.
On the downside, near support could lie at 99.418 and 99.323 breakout points.
The bullish momentum could develop further at the 10-, 55- and 100-day prices simple moving averages (SMA) are below price and have positive slopes.
diagram ccreated in TradingView
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel use the comments section below or @DanMcCathyFX on twitter
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