EURUSD sinks as US economy outperforms
The US dollar surges to a ten-month high against the euro as the Fed tightening looms. Amid sell-off in risk assets, the greenback has outperformed thanks to its safe-haven status and the taper agenda.
Backed by solid economic recovery, the US is the only major economy with the coast clear for monetary normalization. The breakout below the critical floor at 1.1620 is the market’s nod to the policy divergence between the Fed and the ECB.
A positive reading from the US labor market would further lift the dollar against its peers.
1.1400 would be the next target as the reversal gains traction. 1.1750 is a fresh resistance.
GBPUSD tumbles over stagflation concern
Sterling plunges to a ten-month low amid fears of stagflation.
While supply chain issues are on a global scale, the pandemic and Brexit tandem is a worrisome cocktail for the UK. Empty supermarket shelves and dry petrol pumps foreshadow surging prices that would dent consumer confidence and erode growth.
The pound is heavily punished as rampant inflation may derail Britain’s economic recovery. Raising interest rates while growth stagnates would be a hard pill to swallow for the Bank of England.
The bearish reversal is pushing the pound towards December’s low at 1.3200. A rebound is likely to be capped by 1.3700.
AUDUSD softens as risk appetite fades
The Australian dollar weakens as global sentiment turns downbeat. Power crunch in China and fuel crisis in Britain point to a side effect of the lockdowns: supply-side shock. Supply chains prove to be the weakest link in jumpstarting the economy.
Traders are wary that shortages in labor and raw materials may hold growth back. In this context, a safe haven US dollar would shine against a risk-sensitive Aussie.
The RBA is expected to stress on lingering weakness and stay resolutely dovish in this week’s meeting.
A drop below the psychological level of 0.7000 may send the pair to 0.6800. 0.7470 is a key hurdle in the case of a rebound.
US 30 falls over fragile global recovery
Fragile growth prospects weigh on global stock markets. Investors have been stuck between a mixed bag of data and dovish central banks, questioning the robustness of the economic recovery.
A bull’s run can be self-fulfilling until doubts start to creep in. Amid high valuations, investors – especially the weaker hands, are looking for a reason to sell.
The recent chain of events from Evergrande’s default to supply chain constraints could be the trigger. A combination of pessimism and technical breakout might turn the table.
The Dow Jones may plunge to 30700 if it breaches June’s low at 33100. 35000 is the closest resistance.
