Sinking dollar lifts other FX boats, Wall Street slips

Daily Market Commentary – Falling Dollar Raises Other Currency Boats, Wall Street Slips

Marios Hadjikyriacos, XM Investment Research Office

The dollar suffers from technical breaches, revitalizing the pound sterling and the euro

· Stock markets retreat from record highs, profit taking to blame?

Income featured today as traders wait for major events of the week

April blues hit the dollar

A bad month for the US dollar just keeps getting worse. The reserve currency fell through some crucial support levels on several charts yesterday and negative technical momentum has dominated since. So far, one-way traffic has been downhill throughout the quarter.

The dollar troubles appear to rest on three pillars: bets set back for a Fed rate hike next year as FOMC officials insist they will not overreact to impressive economic data, the acceleration of European vaccinations and the general euphoric mood of the stock markets.

The Fed recently insisted it would keep a firm hand, forcing traders to reverse the aggressive pricing of rate hikes that catapulted the dollar and Treasury yields higher in the last quarter. Meanwhile, Europe has finally stepped up its vaccination program, allaying concerns about the return of lockdowns on the road and causing markets to recalibrate their expectations for economic growth.

As always, the question is how far this narrative is already integrated and if there is room for maneuver for the euro / dollar to have even more power. In a nutshell, with the technical wind blowing in the pair’s favor right now, this momentum is unlikely to last long in an environment where America recovers Europe. The Fed will soon be faced with scorching data and may be forced to “ talk ” about cutting QE in the next quarter already, which the ECB won’t do for a long time.

Sterling shines the brightest

Interestingly, the pound has benefited the most from the dollar’s pain. Cable has risen from the ashes to hit the psychological region of $ 1.40, even without any specific UK news behind the decision. For the future, it is a complex picture to navigate.

On the positive side, the UK economy has almost completely reopened and around 60% of the adult population has received at least one vaccine vaccine. However, the quality vaccinations is a problem. Most people have received the Oxford / Astra vaccine, which is less effective against the newer variants, implying that the British vaccination schedule is not as “bulletproof” as that of the United States. There is also a political risk around Northern Ireland and Scotland.

Stocks take a hit, profits in the spotlight

Elsewhere, Wall Street hit a speed bump yesterday. Major stock indices retreated from their all-time highs, with Tesla (-3.4%) dragging the ship down amid reports of a fatal car crash and crypto havoc. currencies.

Overall, market players appear to be pulling some tokens off the table as the earnings season unfolds. Optimism is very high and the earnings outlook has probably been priced perfectly at these levels, so anything that isn’t absolutely stellar results could be seen as a negative surprise. Therefore, it is only natural for some investors to “play defense” here and try to avoid a potential correction.

In that sense, all eyes will be on the series of earnings results that will be released today, including those from Netflix, Johnson & Johnson and Lockheed Martin.

Otherwise, the economic calendar is now practically empty. Traders will have to wait for the Bank of Canada’s rate decision tomorrow for some excitement, and for the European Central Bank meeting on Thursday. While not much is expected from the ECB, it will be interesting to see whether the central bank is comfortable with the continued rise in eurozone yields and the resurgence of the euro.

About Earl V.

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