Is King Dollar Back Again?
Last week was a tumultuous week across global macro markets as hopes of soothing talk from the FED was dashed when Fed Chair Powell decided not to give the kids the candy they so desperately wanted. As a result, US10Y pushed higher alongside the US Dollar. This week’s CPI print poses an upside risk for both US10Y and DXY.
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We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
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On the back of some further position squaring, the DXY jolted higher last week, and right now The big question right now is whether the jolt higher in the DXY is a short-term correction, or if it’s the start of something bigger.
As we don’t have a crystal ball, we’ll need to rely on probabilities to tell us whether this might or might not be the case. That means, looking at the reasons the market had for selling the Dollar over the past couple of months and determining whether that has changed.
The biggest driver for the 13% drop in the USD from its March 2020 high to its Jan 2021 low has been the markets bets on a broad-based global economic recovery with expectations that the RoW will outperform the US.
The Fed’s ultra-easy policy with its new average inflation targeting also meant that the markets assumed the possibility of rising inflation would not spark faster policy normalisations as it usually would as the FED would allow inflation to push higher without taking away the gravy train.
Alongside that, the market’s belief that FED had their back meant that any drastic tightening in financial conditions would be dealt with by the FED with plenty of policy tools still up their sleeves such as Yield Curve Control or Weighted Average Maturity targeting or extending the Supplementary Leverage Ratio or even doing another Operation Twist.
So, has any of these expectations changed recently? We’ll go through that as well as our expectations for the upcoming US CPI release on Wednesday in our week ahead video.
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Highlights of the video:
00:23 – Current Baseline
07:50 – Baseline expectations for the upcoming week
10:50 – Sentiment Shifts & Trade Plan
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If you find these weekly analysis and trade ideas useful, you’ll love Financial Source. There’s a link below were you can learn more about it
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
On the back of some further position squaring, the DXY jolted higher last week, and right now The big question right now is whether the jolt higher in the DXY is a short-term correction, or if it’s the start of something bigger.
As we don’t have a crystal ball, we’ll need to rely on probabilities to tell us whether this might or might not be the case. That means, looking at the reasons the market had for selling the Dollar over the past couple of months and determining whether that has changed.
The biggest driver for the 13% drop in the USD from its March 2020 high to its Jan 2021 low has been the markets bets on a broad-based global economic recovery with expectations that the RoW will outperform the US.
The Fed’s ultra-easy policy with its new average inflation targeting also meant that the markets assumed the possibility of rising inflation would not spark faster policy normalisations as it usually would as the FED would allow inflation to push higher without taking away the gravy train.
Alongside that, the market’s belief that FED had their back meant that any drastic tightening in financial conditions would be dealt with by the FED with plenty of policy tools still up their sleeves such as Yield Curve Control or Weighted Average Maturity targeting or extending the Supplementary Leverage Ratio or even doing another Operation Twist.
So, has any of these expectations changed recently? We’ll go through that as well as our expectations for the upcoming US CPI release on Wednesday in our week ahead video.
----
Highlights of the video:
00:23 – Current Baseline
07:50 – Baseline expectations for the upcoming week
10:50 – Sentiment Shifts & Trade Plan
----
If you find these weekly analysis and trade ideas useful, you’ll love Financial Source. There’s a link below were you can learn more about it
https://financialsource.co
