Energy Prices Spark Inflation Surge in the US: Expert Analysis

(Ipek Ozkardeskaya – Swissquote Bank Ltd)

Despite the softer-than-expected inflation data released earlier last week, US inflation expectations shocked investors at last Friday’s release; the 1-year expectation jumped from 3.6% to 4.6% due to the surprise surge in energy prices. The expectation was a further easing to 3.5%.

And energy bulls remain in charge of the market, as besides the tighter OPEC supply, the US Energy Secretary Jennifer Granholm said that the US could begin buying oil to refill the strategic reserves and the EIA warned that the global oil demand will rise by 2mbpd to almost 102mbpd. Both helped keep the price of American crude at around its 200-DMA, a touch below the $83pb level.

Therefore, despite the easing inflation pressures on the CPI figures, the positive pressure building on energy prices and the surging inflation expectations boost the Federal Reserve (Fed) hawks. Combined with waning bank stress, the US 2-year yield rose last week.

In the FX, the US dollar index tested the lowest YTD levels and formed a triple bottom near the 100.75/100.80 range.

The major peers continue benefiting from a softer dollar to consolidate gains, as gold trades a few dollars below its all-time-high levels. In equities, the S&P500 was boosted by stronger-than-expected earnings from big US banks.

Earnings expectations for this quarter are not brilliant. The S&P500 earnings are expected to fall around 6% in Q1 this year compared to the Q1 of 2022.

Besides the big bank earnings, Netflix, Tesla, TSM, Johnson and Johnson, and P&G will be among the companies that will walk into the earnings confessional this week.

US Dollar Index outlook: Recovery to likely stall under key barriers

(Slobodan Drvenica – Windsor Brokers)

US Dollar Index

The dollar index keeps traction in early Monday’s trading, following a 0.6% bounce on Friday, sparked by better-than-expected major bank earnings in the first quarter, while the negative impact from a much stronger-than-expected fall in US retail sales was partially offset by still resilient core retail sales (excluding fuel, food services, autos, and building materials) that kept optimism and expectations for Fed’s rate hike in May.

Friday’s bounce, after the action repeatedly failed to register close below pivotal support at 100.66 (2023 low), generated an initial positive signal on the formation of a bullish engulfing pattern on the daily chart, although studies on the daily chart are still predominantly bearish and weigh on fresh recovery attempts.

Renewed bulls faced headwinds from the initial barrier at 101.45 (falling 10DMA), with a break here and above the first Fibo resistance at 101.73 (23.6% retracement of 105.85/100.45) needed to reduce downside risk and open the way for further recovery.

Still, more work at the upside will be required to generate an initial reversal signal (sustained break above Fibo 38.2% barrier at 102.52).

This looks quite unlikely for now, despite improved fundamentals, as the dollar index remains in a downtrend and has so far registered 7 straight weekly losses, with a pause above key supports at 100.66/00, rather mark consolidation/limited correction, ahead of a fresh push lower than to point to reversal.

Res: 101.45; 101.73; 101.86; 102.46.
Sup: 101.00; 100.66; 100.45; 100.00.