European Open: The dollar remains supreme amidst hawkish Fed speak

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 6^th, 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)

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.