Dollar rally pauses

Overnight Headlines

*USD hits 10-month peak at 93.72 on Friday before pulling back

*US stocks advanced on Friday, closing marginally lower on the week

*VIX is back below 19, Asian shares and oil are bouncing

USD is lower this morning after making a new cycle high on Friday but closing below that level at 93.45. Levels to watch on DXY are the March high at 93.43 and the July top at 93.19. EUR is trading just above previous key support at 1.1704 after making new 10-month lows at 1.1663 last week. The dollar is still trading below 110 versus JPY at 109.89. GBP is trading around previous March/April support at 1.3660.

US equities made decent gains on Friday reinforcing Thursday’s rebound. They closed marginally lower on the week but the buying in the latter part has left a bullish pin bar candle. Implied volatility took a leg lower with the VIX below 19. Asian markets are buoyant today, bouncing around 2% with tech rebounding. The MSCI Asia-Pacific index sank 4.8% last week. European and US futures are both in the green to kick off the week.

Market Thoughts – More positive risk sentiment

With Asian equity markets rising and a small pick up in Treasury yields, risk assets are finding a bid this morning after last week’s volatility. The rebound in stocks markets is mainly being seen as dip buying after the recent falls. A slew of manufacturing surveys for August out later today will tell us how global growth is faring in the face of the Delta variant. The latter may have repercussions on the main event of the week, the Jackson Hole meeting. There are increasing noises that rising Covid infections may give Fed Chair Powell pause.

Signs of slower growth, “peak growth” as we have written previously, are clearly evident now in the global economy. Commodities are down double digits from their recent highs, the US yield curve is at a one-year low and emerging markets are negative year-to-date. Concerns over China’s economy have also intensified recently. This should all keep USD supported into the Jackson Hole symposium.

Chart of the Day – Bitcoin through $50k

While gold’s bounce back from its flash crash low has stalled recently, bitcoin has quietly been pushing up from its dip below $30,000 in mid-July. A steady uptrend saw a pullback at the February low at the start of this month. But this level at $42,738 now acts as support along with the 200-day SMA above here at $45,910. The uptrend looks bullish with the MACD positive. But the daily RSI is touching overbought territory once again and resistance sits just above current prices at a Fib level (March 2020-April 2021 move) around $50,493.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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