IsUSDdying a little, finally?DXYis down 1.1% over the last week. Dollar bears dumpedthe buck yesterday despite a small end-of-day pull higher.
Was this profit taking –or is patience wearing thin from the clutches of an overbearing safe haven?
Bear aware?
Some anti-USDattitude is understood but probably premature. Geopolitical risk is rising, again,onPresident Putin's slicing up of four provincesof Ukraine. The biggest land grab since the Second World War; it's a big moment. The (independent) Moscow Timesputs itin four words: ‘Putin Always Chooses Escalation’.
Normally this would suggest extra defensive positioning says ING’s Chris Turner –owning more dollars. “Our slight concern is that any disorderly FX de-leveraging in thinning markets could see investors temporarily reduce existing positions - includinglong dollars.”
It’s further complicated by concern whether the euro (EUR/USD)“has fully priced in the consequences of the conflict and the related energy crisis” Rabobank’s fx strategist Jane Foley pointed out this week.
Still sticky
The August release of one of the Fed's go-to measures of inflation – personal consumption expenditures – saw the corerate, excluding food and energy prices, rise from 4.7% to 4.9%, despite a drop in the headline rate from 6.4% to 6.2%.
ING’s Chris Turner at ING said:“Remember that according to the Fed's quarterly economic projections, the central bankexpectsthis inflation measure to drop to 4.5% by the end of this year.
“Even that drop to 4.5% will require Fed Funds being taken into the 4.25-4.50% range.” Today's upside surprise could see the Fed hike harder. Capital fx strategist Daniela Hathorn errs to USD bulls, overall, still.
Inflation priorities still no 1
“We’ve seen warning signs from US GDP data over the last few quarters, but as Janet Yellen [US Treasury Secretary] said a few months ago, a true recession is a broad-based weakening of the economy. I don’t think we're there yet. 🤣
“The [US] labour market remains robust,” 🤣 she goes on, “at least until we get the September data next Friday 🤔, and personal spending remains strong despite having fallen from its peak earlier this year.”
Some new interest in other market currency offerings, including sterling, is understandable. But markets have not lost confidence in the Fed’s ability to handle higher rates and falling consumer confidence –yet.👈(Dinarian Note: Remeber it may take a long time for something to happen, BUT WHEN IT HAPPENS IT WILL HAPPEN FASTER THAN ONE WOULD THINK!)
Some analysts still think DXY could hit 1.20 as conditions tighten further.
Evaporation contained?
Mid morning sterling slumped to 1.1097 as Office of Budget Responsibility (OBR) committee members, including Richard Hughes and Andy King, left No 11 Downing Street just 48 minutes after entering, PA Media claimed.
Kwasi Kwarteng’s toxic decision to sideline the independent OBR in last week’s borrow-to-cut-taxes growth plan, carelessly spilling acetone at markets, is still being worked through.
However the Office for Budget Responsibility has confirmed an initial forecast on 👉7 October👈. Nearer lunchtimeDXYwas at 112.47, up 0.43% whileGBP/USDwas 0.54% lower at 1.1052 andEUR/USDwas down 0.52% at 0.9759.
DXY tearstrip:Fx Strategist And Finance Consultant At Keirstone, Francis Fabrizi
- DXYhas been declining from the 114.766 resistance level this week Fabrizi points out.“I believe we will see further bearish momentum today possibly leading into the beginning of next week. This is inevitably due to the result of buyers taking profits at the end of Q3.
- "Additionally, we have seen the central banks make several attempts to reduce dollar strength, therefore this week’s weakness could be a result of their efforts."
- Monday’s ISM Manufacturing PMI will give a better insight into whetherUSDis preparing for a long term bearish reversal or a temporary pullback before a bigger push to the upside he says.
- But USD is still looking bullish overall. “I anticipate dollar buyers will regain control once price reaches 111.213 support level. If we see price reverse from this level, it is likely we will see another attempt to break through the 114.766 barrier."
- "However, if price falls below 110.377, I believe we will see price reach 109.184 support level which will also be a third tap of the ascending trend line seen on the daily timeframe.”
(Dinarian Note: This would fit our expectation of a quick pump-dump scenerio as we all know the DXY is inversely proportional to the Crypto market as a whole.)
