European Open: The dollar remains supreme amidst hawkish Fed speak

Currency prices
Matt Simpson financial analyst
By :  ,  Market Analyst

Asian Indices:

  • Australia's ASX 200 index fell by -60.2 points (-0.81%) and currently trades at 7,350.10
  • Japan's Nikkei 225 index has fallen by -192.43 points (-0.69%) and currently trades at 27,504.01
  • Hong Kong's Hang Seng index has fallen by -121.37 points (-0.58%) and currently trades at 20,866.30
  • China's A50 Index has fallen by -30.85 points (-0.23%) and currently trades at 13,560.33


UK and Europe:

  • UK's FTSE 100 futures are currently down -14.5 points (-0.18%), the cash market is currently estimated to open at 7,998.03
  • Euro STOXX 50 futures are currently down -31 points (-0.72%), the cash market is currently estimated to open at 4,266.24
  • Germany's DAX futures are currently down -97 points (-0.62%), the cash market is currently estimated to open at 15,436.64


US Futures:

  • DJI futures are currently down -85 points (-0.25%)
  • S&P 500 futures are currently down -73.5 points (-0.59%)
  • Nasdaq 100 futures are currently down -17 points (-0.41%)




The US dollar has continued to strengthen following yet more hawkish comments form Fed members. Although it is James Bullard who has turned up the heat with talk of backing a 50bp hike in March. Fed fund futures currently favour three 25bp hike in March, May and June – but the implied probability of a 50bp hike in March has now risen to ~18 from 12~ the day prior. It is clear that the Fed were not impressed with markets trying to price in cuts this year – and their message is clear; the Fed are hawkish, nowhere near a pause so forget about cuts for now and get inflation (and expectations) lower.


  • And this weighed on sentiment across Asian equities markets, which took Wall Street’s bearish lead with open arms and tracked futures markets lower.
  • S&P 500 E-mins have touched a 25-day low, Nasdaq futures are at a 3-week low.
  • Talk of a 50bp Fed hike in March saw the dollar extend its lead late in the US session and maintain its trajectory during Asian trade.
  • USD/JPY is on the cusp of printing a fresh YTD high and trades around 134.70 as widening yield differentials come back into play, in favour of dollar bulls
  • GBP/USD has fallen to its lowest level since January 6th, due to the combination of the stronger dollar and the UK’s softer-than-expected inflation report on Wednesday
  • NZD/USD has continued lower and just 18 pips from testing out 62c target, outline earlier this week
  • Gold and oil continue to feel the strain of higher US yields, the dollar and odds of a higher terminal Fed rate.


US dollar index (DXY) daily chart:


We were ringing the alarm bell late January of a potential oversold US dollar, and markets now appear to agree. The false break below 101 earlier this month marked a key low and, after a 7-day consolidation, DXY has broken above the 50-day EMA and 104 handle. I suspect the only thing holding DXY back for now ius that EUR/USD holding above its ‘pandemic low’, although that key level is being tested as we speak. But I suspect we’ll be seeing a higher dollar next week, as DXY makes its way towards the 105.63 high.


EUR/USD 1-hour chart


Euro is teasing a break of its pandemic low, but the weekly S1 pivot is also nearby (and marks the overnight low) so perhaps we’ll see a rebound before this key support zone breaks. But momentum and sentiment likely favours continued dollar strength heading into the weekend, so bears may want to see evidence of a lower high if prices retrace higher, or wait for a break of the overnight low to assume bearish continuation. Note that the downside overnight volatility band sits just above the 1.0600 handle.


Economic events up next (Times in GMT)




Related tags: Trade Ideas USD DXY EUR/USD Forex

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