Overnight Headlines

*USD steady after falling for a second day, DXY now below 92

*US equities were positive, Nasdaq made fresh record highs

*Bitcoin rebounds above $30k after hitting new cycle lows at $28,824

USD dropped against most of its major peers as Fed Chair Powell reassured that inflation would eventually come down. Commodity linked FX led the recovery with NZD higher by 0.5% and AUD by 0.3%. JPY is now the worst performing major on the week with USD/JPY touching three-month highs yesterday at 110.86.

US equities gained for a second straight day as Powell stuck to his dovish rhetoric after last week’s dot plot implied faster rate rises. The Nasdaq led the way with gainers in tech and consumer discretionary pushing the index to a record 14,253 (+0.8%) while the broader S&P500 was up 0.5% with defensive utilities the only sector lower. Asian markets are modestly higher while US and European futures are in the green.

Market Thoughts – Dollar holding up so far…

So, comments from Jay Powell and other Fed officials again showed that the debate on QE and tapering is on the cards, but also ongoing. But importantly, the FOMC is nowhere near changing policy on rates with hikes not on the horizon and it still expects inflation to be transitory. Some speakers highlighted the need for more signs of a recovery on the jobs front, which we have been emphasising for some time.

For all the dot plot drama last week, the dip in stocks and inflation expectations too has been “transitory” as markets row back the largely position-driven turbulence post the FOMC meeting. The dollar is holding onto most of its gains so far in quiet trade, with attention turning to today’s PMIs and tomorrow’s Bank of England meeting.

Chart of the Day – Bitcoin rebounds for now

A sweeping regulatory crackdown has hit digital assets in recent weeks with China warning several of its largest state-owned banks to block all digital asset transactions on Monday. This saw a forced exodus of Chinese capital with price hitting a new low of $28,824 and falling as much as 12 per cent yesterday.

Prices have bounced back above the psychological $30k level and we are now trading just below the 50% retrace mark of the March 2020 to April 2021 move when highs hit $64,899. We have dipped below here (34,378) on a few occasions but have struggled to close decisively lower on a weekly basis with buyers stepping in. If the bulls can gain a foothold again, we go back into range trading that we’ve seen over the last few weeks. The close on Friday will be key with the next bear target and Fib level below at 27,175.