A week full of central bankers talking up inflation is ending with some FOMC members including Vice Chair Clarida calling for a faster pace to the Fed’s taper. This is bullish for the US dollar as expectations will be for a rate hike sooner in 2022.
The ActivTrades sentiment indicator for the Brent oil contract shows that 90% of traders on the platform are bullish on this asset. That is an extreme reading and for a contrarian trader one that should be faded. Fundamentally and depending on who you ask the oil markets are currently in a supply deficit. The worry today is that a major trading block, ie. Europe, maybe on a path to widespread lockdowns, that spread across the continent and surrounding countries.
Brent fell on the news that Austria was entering into a full lockdown and on comments by German officials who were gravely concerned about the rising levels of infections. This is now coming on top of calls for countries with emergency reserves to release some oil into the market to alleviate pricing pressures being faced by citizens who are struggling with the rising cost of living.
The US dollar is set to close green for the 4th consecutive week as FOMC members this afternoon stated that they could see the tapering accelerating from December’s meeting. This would then give the Fed some room to raise rates in 2022. This week’s retail sales and Industrial Production data gave the dollar a boost and the Hawkish Fed speakers have kept the greenback supported.
The US equities are currently having mixed fortunes today, but the Nasdaq has started to ascend to daily, new, all-time highs as it reaches 17,000. The highs today at the time of writing were in the 16,600’s and we could see some end-of-week profit-taking as next week is a US holiday week. The Nasdaq is up 2.45% for the week and nearing 8% for the month.
The GBPUSD is having a tough time underneath the 1.3500 level which is acting as solid resistance. With the DXY clearly trading above the Ichimoku Cloud on the weekly time frame, and the FOMC members talking up a faster taper, it is highly possible that the GBPUSD comes under some significant pressure in the coming weeks.
The EURUSD had a bit of respite as the hourly chart price action and the stochastic indicator (10,3,3) had a bullish divergence as the price touched the descending channels low for a second time. If Germany doesn’t go into full lock down this will slow the descent of the euro against a stronger dollar. If Germany does go into lockdown, this could accelerate to the downside.