Dollar Shrugs Off De-Escalation Trade
US/Iran Peace Deal Optimism
The US Dollar remains pointed higher midweek with hawkish Fed expectations and offsetting the downside impact of rising optimism over a potential US/Iran peace deal. Yesterday, Trump claimed that negotiations with Iran are now in their final stages, following earlier comments that the war could be over in a matter of weeks. However, the market reaction shows a lot more caution among traders than we’ve seen previously with USD remaining bid despite a sell off in oil prices and a fresh push higher in stocks and commodities. In prior de-escalation trade phases we’ve seen energy prices and USD fall as stocks and commodities rally. However, the reaction in DXY suggests that the hawkish fed story is taking on more importance now.
Hawkish Fed Expectations
Yesterday, the April FOMC minutes leaned firmly to the hawkish side a number of policymakers asking to signal that the next rate adjustment be a hike not a cut. This marks a strong shift form earlier in the year. It’s worth considering that much of this outlook is premised on the view that the war would drag on, keeping energy prices elevated and inflation trending higher. If the war concludes and energy prices drop sharply, inflationary impact should start to cool in coming months, perhaps negating the need for a hike. Still, on the back of the meeting pricing for a hike this year remains above the 50%, with USD likely to remain bid while this stays the case.
Technical Views
DXY
For now, the index remains around the 99.15 level following the breakout above the falling wedge pattern. While above here, focus is on a continuation higher and a test of the 100.36 level next. To the downside, 98.24 remains the key support to note.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.