The Week Ahead – USD Finds Support As Rate Hike Looms

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USD

EURUSD weakens ahead of Fed meeting

EURUSD

The US dollar rallies as the markets price in a hawkish tone out of this week’s Fed policy meeting.

As the US unemployment rate falls under 4% and inflation reaches a 40-year high, traders are pondering how strong the Fed’s hand will be. Market rumors are that there could be at least four hikes this year. And a half percentage point in March (rather than a quarter point) could further boost demand for the dollar.

Soaring US Treasury yields offers the greenback solid support. In the meantime, the euro would continue to suffer from the ECB’s inaction. The pair may still drift between 1.1200 and 1.1600.

USDCAD slips over BOC rate hike hopes

USDCAD

The Canadian dollar climbs as the Bank of Canada may raise interest rates this week.

Canada’s annual inflation rate hit a 30-year high in December. In turn, this fuelled bets that the central bank will bring forward its tightening agenda and announce a hike in the upcoming meeting.

The greenback may continue to shed gains as its neighbor’s monetary policy catches up. Meanwhile, loonie buyers enjoy a sweet spot amid rises in commodity prices.

As oil prices reach seven-year highs, the Canadian dollar has found an effective floor. The pair is sliding towards 1.2300. A rebound may come under pressure near 1.2680.

UKOIL rallies on tight supply

UKOIL

Oil prices find support from robust demand forecasts and short-term supply constraints. Producers’ firm grip on the output makes it a seller’s market.

The International Energy Agency reported that the OPEC+ group’s production was below its targets in December. In conjunction with low inventories across major economies and upgraded demand forecast, the bulls’ run is yet to end.

Sporadic outages and geopolitical risks in the Middle East could only exacerbate price volatility. A pullback towards 82.00 could be due to the recent parabolic rise. The psychological tag of 90.00 is the next target.

US 100 slumps as sentiment worsens

NASDAQ

The Nasdaq tumbles as investors bet on the Federal Reserve’s aggressive monetary tightening.

Expectations of a sharp rise in US interest rates would send Treasury yields sky-high, making risk assets like growth stocks much less attractive. To rub salt in the wound, earnings disappointments from what were hot stocks last year shatter investors’ hope for a swift rebound.

Lastly, tensions in Ukraine add a layer of geopolitical risks that could keep investors on their feet. Needless to say, the market is in for a bumpy ride as sentiment deteriorates.

The index is hovering above the daily support at 14500. 15600 is the first hurdle ahead.

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