DXY Index (USD) Holds Ground as Fed Hawks Eye off US CPI. New Highs Ahead?


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

  • USD underpinned by higher yields across the curve on impending Fed action
  • APAC equities lower as reality of cyclical peak in loose policy becomes apparent
  • All eyes on US CPI data.Will the DXY index break topside resistance?

The US Dollar continues to climb in the aftermath of a Fed that is now focussed on fighting inflation. US CPI will be the released later today and the year-on-year headline number is expected to come in at 8.4% with core anticipated to print at 6.6%.

The fallout of higher borrowing costs is gyrating through markets, with equities and bonds selling off in unison. The age-old adage of, “Sell in May and go away, come back on St. Leger’s Day,” might have arrived a month early.

This is largely on the back of the continuing procession of Fed speakers talking up their hawkish credentials. Last night it was Chicago Fed President Charles Evans turn, opening the potential for a 50 basis-point hike at the next Federal Open Market Committee (FOMC) meeting in May.

As a result, the entire Treasury curve has been smashed as yields go higher. The benchmark 2- and 10-year notes are at 2.54% and 2.82% respectively, at the time of going to print. This is a long way from the inversion between the two to start this month.

There has been speculation in some quarters of the market that if the Fed is planning to reduce its balance sheet, the 10-year part of the curve might be where they would start.

APAC cash equities were all in the red, following on from Wall Street’s lead. Futures markets are pointing to a negative start for the US.

Crude oil has recovered some of yesterday’s losses, with both WTI and Brent crude oil futures contracts up around 2% in Asian trade today.

Gold has held onto to recent gains, currently just under US$ 1960 an ounce.

The US Dollar index (DXY) has appreciated every day this month, but overall currency markets were fairly quiet in Asia.

The notable appreciation of the Swiss Franc over the Japanese Yen in the prior session held. The oil dependent Norwegian Krone recovered some of yesterday’s losses, in line with the recovery in crude.

Looking ahead, US CPI will be centre stage, but markets will also be watching the release of OPEC’s monthly oil report and Fed speakers Brainard and Barkin will be making headlines.

The full economic calendar can be viewed here.

DXY (USD) Index Technical Analysis

The US Dollar index, represented by the DXY index, continues to appreciate and could test resistance at the peaks of April and May 2020 at 100.556 and 100.931 respectively.

On the downside, nearby support may lie at the break-out points of 99.418 and 99.323.

Bullish momentum might evolve further with the 10-, 55- and 100-day simple moving averages (SMA) below the price and exhibiting positive gradients.

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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