US Dollar Takes Flight as Risk Assets Tank Ahead of US CPI Data. New Highs for DXY?


US Dollar, USD, DXY Index, Crude Oil, China, FOMC, US CPI – Talking Points

  • The US Dollar has strengthened on higher Treasury yields
  • APAC equities followed Wall Street lower while oil held the high ground
  • Inflation fears are driving markets ahead of US CPI.Will USD resume its uptrend?

The US Dollar has been underpinned by Treasury yields climbing towards new highs. The short end in particular is rocketing north, with the 1-year note above 2.3%, up from 2% at the end of last month.

Although the crude oil price has pulled back from Wednesday’s peak, it remains at elevated levels and continues to stoke inflation fears. The WTI futures contract is above US $120 bbl and the Brent contract is over US$ 122 bbl.

The lockdown in Shanghai has reignited fears that China’s growth prospects aren’t as rosy as the market would like and risk assets in general have faced a tough 24 hours.

Wall Street finished lower with the Dow Jones, S&P 500 and the Nasdaq all down 1.94%, 2.38% and 2.75% respectively. APAC equity indices are all lower to varying degrees with the exception of mainland Chinese stocks, that a marginally in the green.

The rout in risk assets has the growth linked AUD, CAD and NZD notably lower while the Euro was also sent packing after the ECB left rates unchanged. They signalled a less hawkish approach to future hikes than the market was looking for.

Gold is slightly weaker with higher Treasury yields, trading near US$ 1,844 an ounce.

The focus now turns toward US CPI due out later today and the ramifications that it could have for the Federal Open Market Committee (FOMC) meeting next week.

Canada will see some data on jobs as well.

The full economic calendar can be viewed here.

US Dollar (DXY) Index Technical Analysis

The US Dollar appears to have regained bullish momentum after a pullback at the end of May. It is back above the 10-, 55- and 100-day simple moving average (SMA) and they all have positive gradients.

The move lower did not pierce below an ascending trend line that currently dissects near the previous low of 101.30, which night provide support.

On the topside, resistance could be at the recent 20-year high of 105.00.

Chart created 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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