DXY Dollar Index Leaps to New Highs on a Hawkish Fed. Will USD Keep Going North?

[MongiIG]

US DOLLAR, DXY INDEX, TREASURIES, FED, GOLD, CRUDE OIL - TALKING POINTS

• The US Dollar has found solid footing as the Fed signals rates liftoff
• Energy, commodities and industrial metals remain at elevated levels
• With short-end yields on the rise, will the US Dollar make new highs?

The US dollar soared as the fallout from Wednesday’s Federal Reserve’s FOMC meeting continues and the market digests the wider ramifications of a central bank keen to tackle inflation.

Short-end yields in the US have continued to climb higher while the longer end remains relatively steady, leading to a bear flattener on the curve. The market is now pricing in 5 hikes for 2022.

2-year Treasuries went above 1.2% overnight, up from around 1% at the start of the week. 10-years are near 1.83%, below last week’s high of 1.90%.

As a result, the US Dollar has strengthened across the board and is trading at its highest level since June 2020, when looking at the DXY index. This is a US Dollar index that is weighted against EUR (57.6%), JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%) and CHF (3.6%).

In the Asian session, the New Zealand Dollar lost the most ground, while GBP managed to hold steady. Gold was crushed overnight, losing 1.20%, currently trading just under USD 1,800.

Crude oil went the other direction, making a new high in the North American session with the WTI futures contract trading at $88.54 bbl and the Brent contract peaking at $91.04 bbl. Both have since pulled back.

Geo-political concerns have been adding to worries over supply into 2022. The market is looking toward the OPEC+ meeting next Wednesday for clues on additional supply potentially coming online.

The various energy commodity contracts in gasoline, heating oil and natural gas are all trading over 1% higher in the Asian session. Iron ore and steel prices have also seen solid gains.

APAC shares are mostly in the green today with Australia’s ASX 200, Japan’s Nikkei 225 and Korea’s Kospi indices up over 2%. US equity futures are pointing toward a positive start to the cash session there.

After French and German GDP numbers today, the US will see personal income and spending data before the University of Michigan sentiment index is published.

 

US DOLLAR INDEX (DXY) TECHNICAL ANALYSIS

The DXY index has broken above recent highs to trade at its highest level since June 2020. The peak of that month was 97.802 and it may offer resistance.

With a consistent move higher from the low seen in May 2021, it is not surprising that momentum appears bullish as shown by a series of simple moving averages (SMA).

The price is above all short, medium and long-term SMAs and with the recent surge in price, the short-term 10-day SMA has crossed above all other SMAs. This may indicate further bullish could evolve.

Support might be at the pivot points and previous lows of 96.938, 96.906, 96.462, 95.518, 94.561, 93.875, 93.278 and 91.947.

Chart created in TradingView

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 28th Jan 2022