Markets Week Ahead: US Dollar, Gold, Dow Jones, FOMC Minutes, PCE, NZD/USD, RBNZ
The US Dollar outperformed its major counterparts this past week. Looking at the chart below, the Japanese Yen was the worst-performing major currency followed by the New Zealand Dollar and then the Chinese Yuan. USD/JPY is a pair that tends to be quite sensitive to the direction of Treasury yields, which have been on the rise lately.
Meanwhile, the Chinese Yuan was already looking overbought based on a model I constructed to look ahead for the coming few quarters. Markets spent much of this past week focusing on unwinding dovish Federal Reserve policy expectations. This was emphasized by Tuesday’s unexpectedly strong US CPI report.
Gold was another notable underperformer last week considering the combination of a stronger US Dollar and bond yields. All things considered, equity markets were relatively resilient despite the rise in bond yields. On Wall Street, the tech-heavy Nasdaq 100 was still up 0.6% last week as the Dow Jones was left little changed.
There was some vocal debate between Fed policymakers in terms of what we could expect for the pace of tightening going forward. A couple of officials opened the door to potentially returning to bigger hikes while others focused on smaller incremental steps. Either way you look at it, a tighter Fed is here to stay, for now.
How is event risk shaping up in the days ahead? We have FOMC meeting minutes, which could continue reinforcing the need to remain vigilant despite a cautious ebbing in inflation. For NZD/USD, the Reserve Bank of New Zealand is seen raising rates by 50-basis points. Towards the end of the week, we will wrap up with the Fed’s preferred inflation gauge – PCE. What else is in store for markets in the week ahead?
How Markets Performed – Week of 2/13
US equity markets are battling against a strong US dollar and higher US bond yields. Monthly option expiry and Monday’s US bank holiday will increase volatility.
Both UK retail sales and inflation data printed better than expected and yet the local currency showed no improvement, reinforcing the negative sentiment around sterling.
The Dollar’s attempt to forge a true reversal from the past four months’ bear trend will likely need to shift its source of strength from rising Fed rate expectations to its discounted role as a safe haven. That means a focus on the VIX rather than Treasury yields.
Canada’s January inflation report and broad market sentiment following the hawkish repricing of the Fed’s policy outlook will be key catalyst for USD/CAD in the coming days.
Oil prices slumped this week as rising rates raised fears of an economic downturn. China’s slow fuel demand recovery following the reopening of its economy also weighed on sentiment.
Dollar Index rallied higher this week as Fed hawks and US data put the Dollar back on top. Can the rally continue?
Upside momentum is fading on Wall Street, with the Dow Jones, S&P 500 and Nasdaq 100 in a neutral state heading into the new week. Will key support levels hold?
Gold prices experienced further losses this week, driving XAU to a new 2023 low of $1,827.7. As GC fell into oversold territory, bulls rushed in driving prices back toward $1,850.
--- Article Body Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com
--- Individual Articles Composed by DailyFX Team Members
To contact Daniel, follow him on Twitter:@ddubrovskyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.