The US dollar has risen almost 4 % since the lows seen in the summer and fundamentals, on several fronts are pointing to a further push higher in the days and week ahead.
This week saw a 5% plunge in global stock markets incited by the ongoing issues with the Chinese property firm Evergrande. The drop in stocks saw the inevitable safe-haven flows into the US dollar. The Evergrande issue has not gone away. Although it is widely expected not to be another Lehman Bros story, which led to the global financial crises in 2008, there will be murmurs and ramifications in the days weeks ahead. Markets don’t like uncertainty and will often see safe-haven flows into the greenback.
Today we get the results of the FOMC. Taper talk is fully on the agenda. Although no one can say for sure what to expect, there is a widespread belief that the tapering timetable will be high on the agenda. Once we have a clear timetable the focus will be on the DOTs. The Dots map out the expected timing of the inevitable rate hikes. I am not convinced that there will be any significant shift forward on the current projections however I am pretty certain they won't be pushing them out. When the markets start to talk about rate hikes the US will launch significantly higher. The Fed are in a difficult place right now. Battling the 'transient' inflation with Covid, China, and soaring global energy. Uncertainty leads to safe-haven flows into the USD.
10 year US yields have been on a steady incline over the last few months. Now poised at a daily resistance at 1.4%. If we break higher on the Fed and other events this week market will be looking for a retest on the 1.7 to 1.8 zone seen earlier in the year. Which will ultimately drag the USD with it…
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