Dollar holds impressive gains into the weekend

Overnight Headlines

*US stocks were mixed after the biggest fall in over a month

*USD rose to 16-month highs, poised for its best week in almost five months

*Oil dipped as it grapples with a stronger dollar

*Gold stayed near five-month highs around $1860

US equities closed mixed on the session. The Dow was down 0.4%, S&P500 eked out a gain of 0.1% and the Nasdaq was up 0.5%. Materials outperformed and metals improved. Chinese stocks have fallen this morning on more Evergrande concerns. The Nikkei has gained over 1% helped by brisk earnings. Stock futures are modestly in the green.

USD continued higher with DXY not yet overbought on various oscillators. EUR fell further and is trading below 1.1450. USD/JPY held steady above 114 and nears a major resistance zone. GBP dropped to 11-month lows below support at 1.3411. Commodity currencies were also offered. This was on expectations that the Fed’s tightening will drive down commodity prices.

Market Thoughts – Inflation surprise still sinking in

US bond markets were closed yesterday for Veteran’s Day. That means there will be some focus on treasury markets today. Weekly closes are always important, and especially so after such major data shocks like US CPI. With some economists predicting headline rates of 7% in the coming months, faster monetary tightening may be needed.

That is the key risk for the new year. The narrative of global price pressures being temporary is fading. That points to downside risks of consensus growth expectations.

Chart of the Day – DXY weekly breakout

The dollar technicals have been the obvious plays this week. The bumper inflation data has clearly played its part. But there are other tailwinds for the greenback too as the Fed starts tapering. Liquidity issues and very bullish seasonal patterns should help support USD.

We looked at the weekly DXY chart this time last Friday before NFP. Prices have clearly broken north through some strong resistance. The March 2020 spike low sits at 94.65 and the September 2020 high is at 94.74. The 200-week SMA has also been pierced at 94.81. Upside targets include 95.71 and 96.35.

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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