US dollar rock solid amid market mayhem ahead of the Fed, BoE and BoJ
The US dollar has held recent gains as the market awaits the Fed; APAC equities are lower but not all risk assets suffered today and all eyes on central bank meeting ahead.
The US dollar made a 20-year high as markets are still recalibrating in the aftermath of last Friday’s mind-blowing US CPI number.
Some risk assets had some reprieve today with the Aussie, Kiwi and Sterling the notable gainers as markets take a breather ahead of what is shaping up to be a hectic week with many central banks’ meetings.
- Wednesday – Federal Reserve
- Thursday - Bank of England
- Friday – Bank of Japan
A 50 basis-point (bp) hike by the Federal Reserve may not be enough to allay market worries of an inflation freight train gathering steam.
The entire Treasury yield curve has screamed upward on concerns that rates are going to need to go much higher than anticipated to get the inflation genie back in the bottle. This boost in US yields has underpinned the US dollar.
The benchmark ten-year note is delivering its highest return in 11 years, trading as high as 3.44% in the US session, and remains above 3.30% in Asia today.
The 5/30’s yield curve has inverted to its lowest level since September 2000. This highlights the market concern that rates will have to be lifted so high in the near term that there will be long-term damage to the economy.
The Bank of England (BoE) is facing a slowing economy at a time when it too is seeing uncomfortably high inflation. Market expectations of a 50 bp rate rise from them remain.
Going the other direction, the Bank of Japan (BoJ) has committed to buying more Japanese government bonds (JGBs) on Wednesday, after amending its yield curve control (YCC) regime earlier today to broaden the maturity range beyond the ten-year JGBs it was targeting previously.
In an unscheduled operation, the BoJ have said that they will be buying JGBs in the ultra-long part of the yield curve. JGB 30-year yield hit 1.26% today, its highest in 6 years. USD/JPY remains steady below 135 after making a 24-year high at 136.19 yesterday.
So, while the Fed and BoE are set to tighten, the BoJ appear likely maintain ultra-loose monetary policy.
Equity markets remain under pressure overall, but futures are pointing to a slight uptick for the start of the European and North American cash sessions.
Australia’s ASX 200 was pummelled after returning from a holiday Monday and catching up with the carnage, down over 5% at one stage.
Bitcoin has also been caught up in the risk aversion. It has traded below 21,000 today.
Commodities markets are reasonably tame by comparison, although agricultural markets are softer as a result of demand destruction fears.
Crude oil is also steady with supply woes somewhat offset by China lockdowns and recession fears. Gold lost its lustre overnight, but is but has held its ground in Asia, trading near US$ 1,825 an ounce.
After UK jobs data and German CPI, the US will see PPI numbers.
US dollar (DXY) index technical analysis
The DXY has eclipsed last month’s peak to make a fresh 20-year high today. The next historical high that may offer resistance is at 109.77 from September 2002.
Momentum appears to be bullish with positive gradients on all short, medium and long-term simple moving averages (SMA).
Making this high saw the price move outside the upper band of 21-day SMA based Bollinger Band. A close back inside the band could indicate a potential reversal.
Support might be at 10- and 21-day SMAs, currently at 103.15 and 102.72 respectively.
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
Start trading forex today
Find opportunity on the world’s most-traded – and most-volatile – financial market
- Trade spreads from just 0.6 points on EUR/USD
- Analyse with clear, fast charts
- Speculate wherever you are with our intuitive mobile apps
See an FX opportunity?
Try a risk-free trade in your demo account, and see whether you’re onto something.
- Log in to your demo
- Take your position
- See whether your hunch pays off
See an FX opportunity?
Don’t miss your chance – upgrade to a live account to take advantage.
- Get spreads from just 0.6 points on popular pairs
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See an FX opportunity?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.