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<Markets Analysis>US Dollar Adjustment Does Not Break Uptrend, Should Maintain Low Absorption

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Inflation in the United States continues to rise, and the CPI in June rose to 9.1% year-on-year which is the largest increase in more than 40 years. PPI is accelerated to 11.3% year-on-year, all higher than market expectations. In the face of rising inflation, the market once predicted that the monetary policy meeting held at the end of July may raise interest rates by 1%, and the US dollar index was pushed to 109.30. Afterwards, several Fed officials made remarks to maintain the stance of raising interest rates by 0.75%, and the US dollar index also entered the adjustment stage which once fell back to around 106.10.

In July, the two major central banks of Japan and Europe discussed interest rates one after another, and the Bank of Japan continued to maintain its loose monetary policy. While raising inflation forecasts and warning that the economy is facing risks, Governor Haruhiko Kuroda emphasized that the economy still needs policy support and that the central bank's goal is to maintain price stability, not the exchange rate. Their speech did not push the yen further down. In Europe, the central bank did not act according to the forward-looking guidance at the June meeting after the interest rate meeting, and unexpectedly raised interest rates by 0.5%, ending the 8-year negative interest rate environment. At the same time, it announced the launch of a transmission guarantee tool to prevent the differentiation of the borrowing costs of countries in the region. In the future, the central bank's policy will also be determined based on data, and the forward guidance will no longer apply. EUR/USD once fell below parity in mid-July, and then rebounded as the dollar softened, encountering resistance at 1.0250/80 several times recently. Although the European Central Bank began to tighten monetary policy, the local economy was weak. Coupled with the disparity in the economic conditions of member states, it is easy to cause the differentiation of borrowing costs and trigger a new round of debt crisis.

At present, the market's worries about the current recession of the US economy have not diminished, and the yield rate of long-term and short-term debt continues to be inverted. The US dollar's recent pullback has not affected the entire upward trend, but there is still room for adjustment. The short-term resistance is at 107.50, and the lower 105.50/80 has greater support. Whether it will test the 50-day moving average still needs to be observed, and the low-level absorption can be maintained.

 

Patrick Law

General Manager of Hantec Group


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