Market sentiment soured last week amid Easter-thinned holiday trading. US equity markets were hit hard, pushing the Nasdaq-100 Index (NDX) and Dow Jones Industrial Average (DJIA) deep into the red for the second week of losses. Treasury traders hit the sell button into the weekend in New York, pushing yields higher, particularly on the long end of the curve. That saw the 10Y/2Y curve steepen further from its recent inversion. In fashion with the risk-off tone on Wall Street, Bitcoin prices fell for a second week, with BTC/USD dropping below the high-profile 40,000 mark.
A steepening of the curve is thought to be a positive sign for the economy at first glance. However, that movement on the long end of the curve here suggests a bear steepening, which as the name implies, is a concern for markets. Priya Misra, TD Securities Global Head of Rates Strategy, on Thursday, said “this is going to tighten financial conditions, this is going to impact the consumer, and this will actually prevent the Fed from hiking much above neutral.” Elsewhere, global central banks seem to be moving full steam ahead on tightening policy, taking cues from the Federal Reserve perhaps.
Those conditions, should they continue, may threaten the Fed’s ability to continue tightening policy later this year. If so, that could inhibit the US Dollar in the coming months. The US Dollar DXY index gained around 0.5% through Thursday’s closing bell. That was likely due to safe-haven flows as well as a slight increase in Fed rate hike bets following last week’s red-hot US CPI report. The Euro was a victim of Greenback strength, with EUR/USD extending its post-ECB selloff into the weekend. In Australia, another monthly gain in jobs wasn’t enough to help the Aussie Dollar.
Speaking of inflation, this week offers multiple inflation prints from G7 economies. The Euro Area’s final March inflation read is due out, with the core figure expected to remain unchanged at 3.0%. Canada’s March consumer price index (CPI) will also cross the wires. Analysts CPI to rise 6.2% on a y/y basis, up from 5.7% in February. USD/CAD rose last week despite higher oil prices. The bullish case for oil prices may be waning on the back of rising US inventory levels.
Europe is mulling a ban on Russian oil exports, with reports indicating that EU lawmakers favor a phased approach to ween the bloc off Russian energy products. New Zealand’s first-quarter inflation will follow, with the Bloomberg consensus estimate tracking at 7.1% y/y. The New Zealand Dollar fell versus the US Dollar last week despite a surprise 50 basis point rate hike from the RBNZ. Japan will wrap the week up with its March CPI report.
US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD
Gold bulls put in work last week, pushing bullion prices up around 1.5% after a red-hot US CPI report. However, sellers may step in soon on falling inflation expectations and growingly hawkish central banks.
A combination of a strong US dollar and an under pressure Euro leaves EUR/USD sitting on a two-year support level that is looking increasingly shaky.
Developments coming out of the IMF 2022 Spring Meeting may influence the US Dollar as Chairman Jerome Powell is scheduled to speak at the event.
Gold has put in a solid run this week with the weekly close likely to shape its future path. The depth of Thursday’s pullback could pose a threat to the bullish outlook
Stocks are trading soft at the moment and could continue to do so as a new week begins.
US Dollar ripped to fresh yearly highs this week with DXY trying to stabilize above 100 on second weekly advance. The technical levels that matter on the weekly chart.
Bulls came back in a big way this week in crude oil, and they may not be finished just yet.
The Canadian Dollar saw a mixed looking at a majors-based index. USD/CAD’s next move could depend on its performance around a key trendline. What are key levels to watch next week?
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter