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US Dollar Provides Safe Harbour From Swelling Recession Fears. Will USD (DXY) Break Higher?

US Dollar Provides Safe Harbour From Swelling Recession Fears. Will USD (DXY) Break Higher?

Daniel McCarthy, Strategist

US Dollar, USD, Crude Oil, US Dollar, Gold, AUD, RBA - Talking Points

  • The US Dollar firmed up through the Asian session as recession looms
  • APAC equities movedlower, joined by commodities and associated currencies
  • A lower crude oil price might help activity.Will USD resume its uptrend?

The US Dollar maintains favour as the rising probability of a global recession appears to be increasingly realised by investors. With risk aversion picking up pace across markets, the Aussie and Kiwi Dollars have been pummelled while the Yen, Swiss and Euro rose alongside the ‘big dollar’.

The Wall Street cash session saw all the major indices finish in the red and the futures have accelerated lower after the close. Soft personal spending data in the US seemed to kick off the negativity.

The S&P 500 closed yesterday to mark its worst first six months of a calendar year since 1970.

APAC stocks have joined them lower for the third straight day, with the curious exception of Australia’s ASX 200.

Hong Kong was closed today as they commemorate 25 years since the handover of control of the territory from Britain to China. President Xi Jinping visited the city and hammered home the “one country, two systems” message. This refers to Beijing’s pledge to respect Hong Kong’s greater political and economic openness, as compared with the mainland.

China’s Caixin PMI was better than expected at 51.7 against the 50.2 forecast, but that wasn’t enough to stem the tide of risk aversion.

Crude oil is lower again after OPEC+ said they would add back all the barrels taken offline during the pandemic. The thought of an impending recession also undermined the price action there.

Gold has continued to slide lower despite lower Treasury yields. The benchmark 10-year note is back below 3% after eclipsing 3.5% just a few weeks ago. A stronger US Dollar may be the culprit here, undermining the appeal of the perennially anti-fiat yellow metal.

While AUD is on its knees today, the RBA is coming up next Tuesday and the market is anticipating a 50 basis point rate hike.

Looking ahead, there are PMI numbers due out across Europe and the US as well as a series of European CPI figures. Then the focus will shift to the for ISM and construction spending data.

The full economic calendar can be viewed here.

US Dollar (DXY) Technical Analysis

The US Dollar index (DXY) is holding a 103.42 – 105.79 range for now. These levels may provide support and resistance respectively.

All of the short, medium and long-term simple moving averages (SMA) are below the price and exhibit positive gradients. Having recently crossed above the 10-day SMA, this could indicate that bullish is evolving.

USD DXY CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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