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USD still on market hawkish pressure


U.S. equities hit their peak and kept falling after the speech of Fed Chair Powell on 12/1. There was a rebound on 12/2 because of the release of nonfarm payrolls, but the pressure from hawkishness is on the cards. The Dow Jones Industrial Average dropped 1.03% to close at 33596.34. The S&P 500 dropped 1.44% to close at 3941.26. The tech-heavy Nasdaq Composite dropped 2% to close at 11014.89. After all, a step down to 50 basis points in December would be an unambiguous signal that a specific deceleration in policy tightening should benefit long equities and USD shorts so long as US corporates can ward off an earnings recession, keeping risk on an even keel. The dollar falls, and short-term Treasury rates fall. The 10-year Treasury yield in the United States is still hovering around 3.539%. The yield was last seen trading over 3.7% at the end of November. The policy-sensitive 2-year Treasury yield sits at 4.34%.

Although the US dollar has weakened precipitously since the beginning of December, the S&P 500 has struggled to break higher ground, then the NFP saved the DXY, and now investors find themselves torn between trading the downturn in inflation vs. the negative impact on growth due to the aggressive hiking cycle. In the meantime, DXY hits its resistance at $105.5.

Besides, with CPI, PPI, and, most importantly, the core PCE deflator pointing to weakening price pressures, the Federal Reserve’s hawkish messaging will unquestionably be challenged by the market via cycle compression. Play the short dollar card and aim for the rising potential stock market for the best risk/reward.

Main Pairs Movement

The US dollar ended Tuesday with modest gains of 0.26% daily. In the absence of an economic calendar, the safe-haven greenback attracted some risk-aversion flow during the US trading session, managing to rebound from a daily low of 104.9 to around 105.5. Now, investors are seeking safety amid gloomy economic warnings from bank chiefs at a time when concerns about the impacts of Federal Reserve policy on growth and corporate earnings are running rampant.

The GBPUSD fell 0.47% daily, as mixed market sentiment and a lack of major data, as well as optimism surrounding China and the pre-Fed blackout, allowed the GBP/USD to remain firmer. However, the pair was dropping below the 1.2140 level at the late American trading hour as the US Dollar successfully found some positive traction. In the meantime, the EURUSD fell below the 1.0470 level and recorded 0.23% losses on Tuesday.

The XAUUSD was slightly moving up with a 0.13% daily gain for the day, struggling to find a decisive direction in the absence of clues about the Federal Reserve’s rate hike policy. During the late UK trading session, gold broke through the $1780 mark, but faced heavy selling and fell below the $1770 mark during the American trading hours.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDEIA Short-Term Energy Outlook01:00
AUDGDP (Q3)08:300.7%
INRInterest Rate Decision12:306.25%
CADBoC Interest Rate Decision23:004.25%
USDCrude Oil Inventories23:30-3.884M