Overnight Headlines

*USD moved strongly off 90 on DXY, nearing mid-May highs

*US equities rose slightly adding to new record closes

*Gold sold off above $1900, oil hits 32-month high

US equities rose slightly Friday with futures in the green and European bourses pointing higher. The S&P500 marked its third consecutive positive week while the Nasdaq posted its fourth straight winning week. Growth sectors are leading the gains with tech and consumer discretionary the big winners. Most major Asian markets are closed for holiday.

USD rose 0.5% on Friday (DXY) marking three straight weeks of gains and the strongest weekly advance since early May. EUR saw its largest weekly drop since the end of April reflecting the continued dovish stance after the ECB’s latest policy decision on Thursday. GBP is trading at the bottom of its recent range as the UK awaits the likely postponement of the grand reopening.

Market Thoughts – Fed and UK data on the risk radar

Will the Fed mention tapering? Their latest two-day meeting ends with the usual announcement on Wednesday evening UK time with questions all about whether the central bank should wind down the pace of their bond-buying programme. More policymakers have come out recently “talking about talking tapering” – the key question and one the market is obsessing with, is when is the “appropriate time at some point in upcoming meetings” is to start. The consensus believes the actual process will only commence early next year with a heads-up in late Summer/September, of course anything sooner (a less cautious Fed) will boost the dollar.

It looks like the UK’s grand reopening will be postponed for four weeks though the impact on the economy is expected to be quite limited. UK-EU trade tensions still linger while it’s a busy week of data with rising near-term CPI on Tuesday set to normalise next year, and jobs and retail sales figures later in the week improving further, reflecting the reopening of the economy.

Chart of the Day – DXY finds support

Most market watchers don’t expect the FOMC statement, press conference or new forecasts to unduly upset markets, even if taper talk time is getting nearer. If nothing too hawkish emerges, then the dollar should resume its soft tone although there is now very strong support around 90 in DXY, which corresponds to 1.22 resistance in EUR/USD.

After the big rebound on Friday, DXY is now approaching the Fib level at 90.81 ahead of the 100-day SMA at 91.06. Bullish momentum has picked up, but very modestly just above 50 on the daily RSI. The MACD is more advanced, so prices need to close above last week’s high at 90.63 to make an advance on 91 near where the 100-day SMA resides. If the longer-term downtrend resumes, 90 and then the February low at 89.68 need to be broken for more prolonged downside.