Spreadex Market Update

EUR Hits Parity with Dollar As“Fed-Pivot” Fades



The US Dollar surged higher once again yesterday with the Dollar Index close to hitting fresh highs for the year. Against the Euro, USD hit its highest level in 20-years yesterday, along with broad-based gains across the board.

The moves are being driven by the view that the Fed is likely to stick to its current projected tightening plans this year instead of opting for the so-called “Fed pivot” which traders had been discussing on the back of softer July CPI.

Traders will now be looking to today’s US PMI data for both the factory and non-factory sector, along with new home sales. It would likely take some material disappointment across these indicators to curb USD-buyers’ enthusiasm near-term. Any upside surprise, meanwhile, should help propel the USD rally further.

 

Key Factors for Today

- USD hits 20-year highs against EURUSD
- Equities sink on USD strength
- US, UK & EZ PMI readings due today
- USD & JPY lead in FX – EUR the weakest
- Gold & silver stabilise after losses, crude turning higher

 

Coming Up

- USD US PMIs
- EUR Eurozone PMIs
- GBP UK PMIs

 

Equities Lower Across the Board

It was another tough session for equities markets yesterday as bond yields continue to rise around the globe. With traders bracing for an extended period of elevated inflation, central banks are expected to have to continue with monetary tightening, despite growth fears. This combination has hit asset prices across the board this week.

In the US, the S&P is now down almost 5% from last week’s highs with similar downside in the Nasdaq. In Asia, the Nikkei is off around 3%, along with the Hang Seng which is down around 5%. In Europe, the DAX is down more than 5% also while the FTSE is showing the most resilience so far, down just over 1% from recent highs.

 

Latest PMI Readings Due Today

The latest round of PMI readings from the US, UK & Europe will be closely watched by traders today. Expectations are generally for weaker numbers as elevated inflation and ongoing supply issues continue to impact businesses. This is likely to add to the bearish tone in markets near-term with central bank expectations unlikely to change given the outlook for inflation to remain elevated for longer, maintaining the necessity for banks to continue to tighten.
USD & JPY Lead in FX, EUR the Weakest
In FX, safe-havens have once again been the strongest performers across the European open on Tuesday. USD and JPY continue to attract the majority of flow while EUR has been the weakest performer again. Soaring gas prices are wreaking havoc on near-term growth prospects for the eurozone as the single market continues to battle surging inflation and the broader fall-out from the Russia-Ukraine conflict.
Commodities Stabilise Following Heavy Selling
In the commodities space, gold and silver both saw heavy selling yesterday, extending the declines from their recent highs. However, both metals have stabilised for now across the early European session on Tuesday. Oil prices have managed to hold onto support at recent lows with crude futures turning a little higher today, deriving support from the continued rally in gas prices which is likely to turn more demand towards oil near-term.

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