Fundamental Analysis by FxPro

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Dolar hampir dengan mata wang paling popular di dunia. Indeks dolar menghampiri kemuncaknya pada Mac 2020 dan Januari 2017. Pelabur dan peniaga telah mendorong dolar ke titik perubahan penting sepanjang enam tahun lalu, menjangkakan salah satu keputusan paling hawkish dalam beberapa dekad.

Keputusan FOMC hari ini akan menentukan sama ada kita melihat pembentukan DXY teratas tiga kali ganda dan permulaan penarikan semula dolar atau sama ada kita melihat momentum yang semakin meningkat dengan keuntungan pembeli dolar.

FOMC dijangka menaikkan kadar faedah utamanya sebanyak 50 mata - pengetatan paling ketara sejak 2001 - apabila ia mengumumkan permulaan jualan aset daripada kunci kira-kira Fed pada $95 bilion sebulan.

Peserta pasaran juga memberi peluang hampir 100% untuk kenaikan kadar 75 mata pada mesyuarat seterusnya pada bulan Jun, ditambah 50 mata pada bulan Julai. Kenaikan mendadak dalam kadar faedah yang terakhir dialami oleh AS pada 1980-an, memerangi inflasi dua digit.

Penganalisis Kanan di FxPro berkata ini adalah langkah melampau yang wajar dan diperlukan oleh Fed dari segi inflasi semasa dan data pekerjaan. Ia juga dipercayai secara meluas bahawa Fed telah lewat mengetatkan dan kini perlu mengetatkan lagi skru untuk mengembalikan ekonomi pada trajektori yang mampan.

 

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Dollar as a safe haven of last resort The dollar index renewed its highs in almost 20 years, surpassing 104, as crucial US currency rivals one by one lost buyer support. Suddenly the dollar was a safe haven of last resort. In 2018 and 2020, the dollar was approaching current extremes amid a total sell-off in equities and commodities. But in those years, flight to safety forced demand for the yen and franc, which is not the case this time as both ‘havens’ are at multi-year lows with equity markets falling.

Senior analyst from FxPro said, the Dollar Index has been testing the upper end of its trading range for the last six years, and it now has a much higher chance of holding above that level. The previous two times the DXY got close to 104, the economy and inflation needed stimulus, not cooling as they do now. This is a sharp reversal in attitude to the dollar, which in 2021 was often described as losing its value and leading currency status. While its relevance as a means of payment continues to be debated and questioned, its increasing rate, coupled with more attractive US government bond yields, makes the dollar an almost uncompromising choice at the moment.

European or Japanese politicians can hardly be expected to be complacent about the depreciation of their currencies, further fuelling inflation and exacerbating economic problems. The Japanese authorities seem to have successfully talked the markets down at the end of April by stopping the yen’s decline near 130. Over the last couple of days, we have seen an intensification of policymakers and economic institutions from Continental Europe, indicating the need to raise rates soon to match the pace of tightening from the Fed. At current levels, the dollar has found itself in a zone of turbulence, which clearly shows the scope for the GBPUSD to fluctuate over the last 24 hours.

A consolidation above 104 at the end of the week would confirm to markets that the next technical stop for the DXY could be around 120, which is the high of the early part of this century.

 

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The dollar got a fresh boost, with stocks coming under renewed pressure after a new batch of US inflation data, said senior analyst FxPro Alex Kuptsikevich.

The US consumer price index rose 0.3% in April after 1.2% a month earlier. The annual inflation rate slowed from 8.5% to 8.3% but was higher than the expected 8.1% y/y. Particularly worrying for markets is the development of core inflation. The corresponding index added 0.6% m/m and 6.2% y/y last month, higher than the expected 0.4% and 6.0%, continuing the sprawl of inflation.

While the annual rate of core and core inflation seems to have peaked, higher-than-expected inflation is now positive for the dollar and weighs on equities as it suggests a more robust Fed response. With inflation far from the 2% target, the Fed will be inclined to act faster (raise rates more than 50 points at a time) or stop hiking at a higher level.

Locally, we see a tug-of-war around the dollar against the euro and yen near the lows of the past two weeks and swings against the pound and the franc near this week’s extremes. However, a significant risk demand indicator, bitcoin, has already moved out of the range with a lower boundary in January 2021.

The S&P500 and Nasdaq futures were also pushed back to this week’s lows, indicating continued bearish pressure.

 

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US stock markets closed last Friday with a substantial and widespread gain. Do we see a dead cat bounce or the beginning of a recovery? So far, there are more reasons to suspect the former.

The CNN Fear & Greed Index was down to 7 last week, rebounding to 12 by Monday. Current levels are still in extreme fear territory, but a rebound from multi-month lows often heralds a return of buyers who think the emotional sell-off has gone too far. Technically, the S&P500 has managed to bounce back from a bear market territory and has temporarily returned to levels above 4000, while Dow is above 32000.

However, in our view, we saw positional profit-taking on Friday, but not the end of a downward trend. The weekly chart’s S&P500 and Dow Jones indices have not yet reached the oversold area where they appeared attractive for buying in March 2020.

Particularly worrying is the comparatively quiet nature of the sell-off. The market volatility index VIX remains the only one of the seven “Fear and Greed” components in neutral territory.

The latter signals a systematic sell-off of assets rather than a panic flight. This is not a straightforward approach for the market to change.

 

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UK consumer prices rose by 2.5% in April, the second-biggest monthly gain in the indicator’s history since 1988. Annual inflation jumped from 7% to 9%, unseen in the indicator’s history.

The longer-established retail price index last saw a high annual growth rate (11.1% y/y in April) in 1982, while such a big monthly jump (3.4% m/m) was last observed in 1980.

However, despite the horror that these figures represent, there are still indications that the UK’s peak annual rate of inflation will be much lower than in the 1980s (22%) or 1970s (27%).

While Output Producer Prices are showing an acceleration in the annual growth rate, rising to 14%, Input PPI has slowed from 19.2% to 18.6%. Although remaining volatile in recent weeks, oil and gas have regularly retreated from highs, limiting upward pressure on prices. Metals, meanwhile, have withdrawn from the highs.

At the same time, there are growing questions about final global demand, which will constrain producers in shifting costs to consumers.

Early hints that UK inflation may be slowing in the coming months may allow the Bank of England to raise the rate by 25 points at its next meeting in mid-June and not copy the Fed’s 50-point move.

 

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The US market crashed significantly in Wednesday’s trading, with echoes of the fall reverberating across Asian exchanges on Thursday morning. The US S&P500 is down more than 4 per cent for the day, the biggest fall since June 2020. The Nasdaq is now 5.5% lower than it was at the start of the day on Wednesday. Both indices have rolled back to the lows reached a week ago.

Behind investors, pessimism was caused by disappointing reports from major US retailers. Giants such as Walmart, Target, and Amazon suffer from rising costs due to a spike in purchasing prices and energy combined with increasing labour costs.

April’s latest retail sales report showed that Americans are spending commensurately with rising inflation. This transition for retailers from a boom to a pace barely keeping up with increasing prices raises fears that an economic slowdown awaits the economy going forward.

However, this simplistic extrapolation risks being a mistake. The major retail players have not kept up with the price surge, as we can see in the latest reports from Walmart and Target and the following market reaction. But history suggests that stopping the acceleration of inflation is enough for retailers to find the ground beneath their feet.

The slowdown in price growth is a golden time for retailers and the overall stock market. This trend can easily be traced back to both the shock waves of price surges in the 1970s and 1980s and the chronically low inflation of the 2010s.

As a result, investors have little choice but to wait for reliable signs that inflation has turned around. We may have to be patient for a few months. But it also cannot be ruled out that the rate of price increases is near or past its peak.

That’s hard to believe when looking at price rises in shops but much easier to consider when looking at declining volatility in the energy market and a 15% fall in the base metals’ basket.

The Chinese renminbi, which lost 6.4% over the month, also acts as a significant suppressor of inflation in the USA and elsewhere via lower imported inflation.

Thus, yesterday’s panic selloff in the markets and the persistence of investor anxiety on Thursday heralds the approach of a panic peak. And with it, perhaps a local low preceding a rebound.

 

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The dollar in the foreign exchange market is correcting some of the gains of the past three months. The dollar index has retreated below 103 after touching 105 a week ago. The retreat of the US currency goes against a wide range of peers and several asset classes. 10-year Treasury yields, which peaked near 3.2% last week, are still declining.

Such dynamics reflect investors’ hesitation regarding the prospects for the US economy, around which recession risks are mounting. The decline in long-term bond yields indicates investors’ doubts that the Fed will be able to raise and keep rates high for a long time, and it reduces the attractiveness of investing in the dollar.

But it is also worth noting the work of other central banks, which are closing the gap between their policy and Fed sentiment by tightening their rhetoric almost daily.

However, the dollar’s weakness is contained within the framework of a correction after a tumultuous rally. Talking about a break of the short-term uptrend is only appropriate if the Dollar Index falls below 102.30, where the lows of May and the 61.8% area of the last rising momentum from the start of April are concentrated.

A break of the latest uptrend is evidence that a false break-up of the long-term resistance at 103.0, earlier this month, was achieved.

However, it has to be noted that the observed weakening of the dollar might be no more than a temporary respite for several reasons.

 

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A preliminary estimate showed that German inflation continues to pick up, reaching 7.9 y/y in May. This is a new inflation record since 1951, and the reading was also above the forecast of 7.6%.

A separate release of import prices noted an acceleration of this type of inflation from 31.2% to 31.7%. Although it was slightly lower than the expected 32.0%, this extreme reading was not only due to a jump in energy and food prices but also to a 15% fall in EURUSD over the past 12 months.

Historically, EURUSD has fallen in this way, with even more amplitude several times, but as a rule, it was during times of economic recession. Now we are seeing one of the rare instances of the single currency failing in a growing economy, which further inflates the sails of inflation.

With such inputs, there remains pressure on the ECB for more dramatic monetary policy tightening measures.

Perhaps a hawkish U-turn by the European Central Bank is now the most plausible way to halt the weakening of the EURO and contain inflation.

And it seems that the ECB is just in the process of this turn, forming the basis for buying the euro against the dollar and pound after touching multi-year lows earlier in April and May.

 

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The Crypto market pushes back from the bottom

Bitcoin jumped 7% on Monday, ending the day at around $31.2K. On Tuesday morning, positive momentum persisted, with the rate climbing above $32.0K, a 20-day high.

Ethereum added 8.2%, while other top-ten altcoins gained between 4.9% (BNB) and 14.8% (Cardano). The total capitalisation of the crypto market, according to CoinMarketCap, rose 4.3% overnight to $1.31 trillion, with the Bitcoin Dominance Index rising 0.1 points to 46%. The Cryptocurrency Fear and Greed Index was up 6 points to 16 by Tuesday but still in “extreme fear”.

Due to the US bank holiday, markets were minimally active on Monday, but the momentum was on the plus side. The emerging rebound from the bottom may be self-sustaining at first, as many market participants believe that the crypto market has corrected enough to become attractive for long-term buying.

However, fundamentals such as halving, soft monetary policy or accelerated adoption are needed for growth to continue. But the latter is not easy right now. Bank of America CEO Brian Moynihan has stated that the bank has no plans to introduce cryptocurrencies in the foreseeable future because the industry is too strictly regulated.

After the Terra project collapsed, CFTC Commissioner Caroline Pham compared investing in crypto-assets to buying lottery tickets, which can be expected to both win and lose.

Real Vision CEO Raoul Pal reiterated that in the long term, Ethereum, the leading smart contracts platform, will surpass bitcoin in terms of market capitalisation, trading volume and number of active wallets. SkyBridge Capital founder Anthony Scaramucci noted the interest of large investors in spot bitcoin ETFs and suggested they could be launched as early as this year.

Payments service MoneyGram plans to launch Stablecoin transfer services in partnership with Stellar.

 

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Brent storms $120, but the rally may be nearing the end

Brent spot prices were approaching $120 earlier today on news that the EU managed to agree on an immediate embargo on 2/3 of oil imports from Russia. We saw Oil trading above current levels for just a couple of days in March.

Over the last four days, as discussions on the ban on oil imports have continued, its price has risen by more than 7%, and much of the news may already have been priced in.

Current levels are at a considerable distance from the highs of 2008 at $146 and below the peaks of 2011 and 2012 when they briefly went above $126. However, from a historical perspective, prices are close to unsustainably high levels.

Already, high energy costs are causing a decline in retail consumption in Europe and the US, the world’s wealthiest regions. No doubt developing countries are experiencing an even more significant slowdown in their economies because of prevailing high fuel prices.

Oil is susceptible to fluctuations in supply and demand, so a shift in the balance of supply and demand by a couple of per cent sometimes triggers movements of tens of per cent, as happened more than once in the past decade. The high cost of fuel is already causing a reduction in consumption, which, combined with higher quotas in OPEC+, will shift the balance towards the buyers in the coming months.

From current levels, we would venture to guess that oil has minimal short-term upside potential to bounce back from the news emotionally. A prolonged lull could follow, with movement in the $100-120/bbl range until the end of the year, during which time demand and supply will adjust to the new reality.