We view the USD as a long term buy inflation is surging but the market is to complacent about Fed action in relation to cutting stimulus and raising rates. We also have Non Farm Payroll on Friday which we expect to be USD supportive. The market is heavily short the USD which limits downside in our view and gives plenty of upside if speculators exit on stop…
BofA expects U.S. inflation to remain elevated for two to four years, against a market perception of it being transitory, and it noted that only a market crash would prevent central banks from tightening in the next six months: “Fascinating so many deem inflation as transitory when stimulus, economic growth, asset/commodity/housing inflations deemed permanent” On the chart below we can “US inflation averaged 3% in the past 100 years, 2% in the 2010s, 1% in 2020, and is annualizing so far at 8% in 2021:
The Fed is clearly concerned about inflation as the chart from TS Lombard Below shows.
The Fed has a problem – they don’t want to spook financial markets but they know inflation could get out of control. Some Fed officials already are pushing for a faster tightening of monetary policy based on the inflation they see coming. Others have begun to cite concern about asset bubbles and financial stability as a possible reason to move more quickly on tightening monetary policy. The U.S. economy will likely meet the Federal Reserve’s threshold for tapering its asset purchases sooner than people think Dallas Fed President Robert Kaplan noted last week and he has penciled in an interest-rate increase next year.
The Market Doesn’t See Rate Hikes Coming….
The idea of a first-rate hike in 2023 which the market believes is too dovish in our view and the market is seeing just a 41% chance that the Fed will hike rates by July 2022.
Inflation is broad-based and we can see it in Food and house prices below
“There have been periods of rising raw materials costs in the past, such as when steel prices rose in response to sharply higher iron ore and coking coal prices. However, the striking feature this time is the steep increase in all commodity markets, including steel, precious metals, semiconductors (in both prices and procurement), and in marine freight markets.” The MarketEar)
We view the USD as a long-term buy as speculators still remain heavily short and bearish…
Non-Farm Payroll
May non Farm Payrolls are expected at 675k v 559 compared to the previous month – We would expect a number around forecast as the Republican States including Florida and Texas have curtailed extra unemployment benefits early which had given workers less incentive to seek work. All the states combined account for 40% of the workforce. We also have a record number of job openings and that also means wage inflation.
DXY US Dollar Index Weekly Chart
A breakout above the nearby double top is expected to signal a major rally to correct the USD’S oversold condition and take out the large number of speculators who are short on stop.
Research provided by LearnCurrencyTradingOnline.com
The given data provided contains additional information, forecasts, analysis and market reviews published on the Key to Markets website.
Before making any investment decisions, you should know that:
– Key to Markets publishes analysis of any kind solely for information purposes and such analysis should not be construed as investment advice or a solicitation to buy or sell any financial instruments including without limitation CFDs.
– Key to Markets will not be liable for any loss or damage, which may arise, directly or indirectly from use of or reliance on the data provided by Key to Markets.
– Whilst all reasonable efforts are made to ensure that all content sources are reliable and that all information is presented, as far as possible, in a comprehensible, timely, accurate and complete manner, Key to Markets does not guarantee the accuracy or completeness of any information contained in the analysis.
– Past performance is not a guarantee of future results.