(Slobodan Drvenica – Windsor Brokers)
US Dollar Index
The dollar remains steady and holding above solid supports at 109.58/51 (broken Fibo 61.8% of 110.77/107.65 / 10DMA) in European session on Thursday.
Wednesday’s pullback from the top of strong rally following US inflation report, sparked by signals of possible intervention of the Bank of Japan, was strongly rejected after markets realized that intervention is for now unlikely.
The greenback kept fresh bullish tone, regained after hotter than expected inflation in August, revived expectations that Fed will remain on track for another 0.75% hike, with some hints of being even more aggressive in the policy meeting next week.
This offers fresh support to the US currency, along with daily techs, now returned to full bullish setup and the action underpinned by Tuesday’s large bullish daily candle.
Repeated close above broken Fibo level and 10 DMA to re-confirm bullish stance and keep focus at the upside, with immediate target at 110.03 (Fibo 76.4%) and key barrier at 110.77 (new 20-year high posted on Sep 7).
Res: 109.89; 110.03; 110.53; 110.77.
Sup: 109.51; 109.21; 109.09; 108.84.
Fed’s inflation fight
(Giles Coghlan LLB, Lth, MA – HYCM)
This week was dominated by the hot US inflation print on Tuesday. Markets were expecting another dip lower in US inflation, but the headline and the core readings came in at the high end of expectations sending stocks and bonds sharply lower and the USDJPY higher. Midweek UK inflation printed a little lower than anticipated and this should alleviate some of the UK’s stagflationary concerns in the near term ahead of the BoE’s meeting next week. The medium-term picture for stocks is incredibly difficult to anticipate in these current markets and trading short-term catalysts seem the best approach with so many uncertainties. All eyes are now firmly on the Fed for next week.
Other key events from the past week
USD: Hot US Inflation, Sep 13: The headline (8.3% vs 8.1%) and the core readings (6.3% vs 6.1%) came in at the high end of expectations for US CPI and this led to calls for a 100bps hike from the Fed next week.
JPY: BoJ intervention ahead? Sep 14: Just after the hot US CPI inflation sent USDJPY higher there was increased speculation that the BoJ would act against JPY weakness. Japan’s finance minister says if Japan was to intervene it would do so without pause sending out another verbal warning to speculators.
GBP: UK inflation, Sep 14: UK inflation came in softer than expected at 9.9% vs 10.2% expected. This allowed the GBP to gain against the EUR and the USD shortly after the release and will likely take some pressure off the BoE next week.
Key events for the coming week
USD: Rate decision, Sep 21: The short-term interest rate market is now expecting a 79% chance of a 100bps hike next week. Will the Fed deliver such a sharp increase or will they surprise markets with only a 50bps hike?
Silver slide: Will silver resume its slide again this week post-hot US inflation?
GBP: Delayed rate decision, Sep 22: The BoE’s postponed meeting, after the death of the UK Queen, is expected to see a 50bps hike delivered. However, with UK inflation printing lower than expected this week, will the BoE show signs of slowing its terminal path of rate hikes?