The US dollar is starting the week on the front foot, with the index that measures its performance versus a basket of other major currencies approaching the near-20-year-high reached earlier in the month. The strength of the greenback illustrates the prevailing investor sentiment, with a base line expectation that the Fed will hike interest rates by 75 basis points. There is also a minority of traders who believe that the US Central bank may go further, raising rates by a full percentage point, when it announces its decision on Wednesday. The US inflation data released last week surprised to the upside, leaving some observers pondering the possibility of the Fed becoming even more hawkish by deploying a jumbo rate hike. The growing chances of such action taking place is likely to continue to support the dollar in the run-up to the mid-week decision.
Ricardo Evangelista – Senior Analyst, ActivTrades
European shares continued to fall shortly after the opening bell of the first trading session of the week, extending last week’s losses as traders brace for a busy week on the macro front.
The cautious trading mood prevails on the markets on Monday after investors ended the last week with more questions than answers following the latest batch of mixed macro data. This new week is likely to remain volatile for most benchmarks as traders await key monetary decisions from the BoJ, SNB, BoE and the Fed alongside speeches from ECB officials and other key macro data.
Investors have become much less comfortable with this tighter liquidity environment, with many realising it will stay in place for a much longer period of time than initially expected, which ultimately leads to the current decreasing appetite for riskier assets.
The situation isn’t really reassuring from a technical point of view either, after the STOXX-50 index broke its bullish short-term trendline last week. Moving averages are both bearish, with a widening gap between them, while the DMI indicator clearly displays escalating downside pressure inside an increasingly directional price action.
Pierre Veyret– Technical analyst, ActivTrades
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