Spreadex Market Update
Dollar Drop Deepens – UK Inflation Hits 40-yr Highs, Oil Softens on Inventories Data
The US Dollar correction grows deeper still as selling continues over the European open on Wednesday. Some recent pushback against the prospect of a larger 100bps hike by the fed, as well as hawkish expectations ahead of the ECB this week, are detracting demand away from the Dollar currently. The depth of the pullback so far, the deepest since May, shows the level to which bullish positioning had become extended in the Dollar as long positions continue to clear heading into next week’s FOMC meeting.
Key Factors for Today
- USD lower again as market focus shifts elsewhere – ECB tomorrow
- Risk assets rebound firmly amidst USD drop
- AUD & NZD leading in FX, EUR higher ahead of ECB
- UK inflation hits fresh 40 year highs – Bailey says 50bps hike on table in August
- Gold and silver muted
- Oil falls on API inventories data – EIA up next
Coming Up
- CAD Canadian CPI
- EUR Eurozone consumer confidence
- USD US existing home sales
Risk Rally Continues
It’s been a solid week for risk assets so far with equities markets continuing to gain ground on Wednesday. The drop in the US Dollar has created plenty of upside in stock markets with indices across the globe moving higher again on Wednesday. The ASX is trading back up to test the June highs, while we’ve seen the Nikkei breaking out to its highest levels since early June, boosted by a weaker JPY and fresh BOJ easing signals. The DAX is higher also, up by nearly 8% off the month’s lows ahead of the ECB tomorrow.
Risk Currencies Lead in FX
In FX, risk currencies continue to dominate the landscape on Wednesday. AUD and NZD are storming ahead, benefiting from a weaker USD and a generally stronger risk tone across the board. EUR is trading higher also, likely benefiting from hawkish expectations ahead of tomorrow’s ECB meeting which is scheduled to mark the first ECB rate hike in over a decade. Safe havens are on the backfoot again today with USD, CHF and JPY weakening further.
UK CPI Hits 9.4%
In the UK, inflation was seen rising to fresh forty-year highs last month at 9.4%, up from 9.1% the month before and above the 9.3% forecast. This marks the 9th straight month of inflation increases and comes on the back of comments from BOE governor Bailey yesterday who said that a 50bps hike is on the table for August.
Metals Muted Despite Dollar Drop
Gold and silver prices continue to cling to lows on Wednesday. Despite the heavy selling seen in both metals last week, neither metal has broken down to fresh lows this week. Similarly, despite the pullback in USD, neither metal has been able to capitalise so far with both showing mostly muted action as the rally in risk assets attracts better trader demand.
Oil Falls on API Data – EIA Up Next
Oil prices have softened a little today. Following an 11% rally off the week’s lows into yesterday’s highs, we’ve seen crude futures coming off a little over the European open. Tuesday’s API data pointed to a further build in commercial US crude stores raising concerns ahead of today’s headline EIA release with traders fearing a further surplus to be confirmed on the back of last week’s unexpected build.
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