Author: Sir Amar – Technical Analyst

The US dollar hit a 20-year high as markets are still recalibrating after last Friday’s stunning US CPI figure. The US dollar eased slightly in early European trade on Tuesday, but stayed higher as traders braced for the Federal Reserve’s latest meeting in the wake of a sweltering US dollar inflation report. The dollar index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 104.890. Risk assets may rebound in the coming days given how quickly risk assets have fallen in recent sessions and the dollar may face a correction soon, but at the same time we believe Wednesday’s FOMC rate announcement will turn out to be mostly dollar- will prove kind.

In the other direction, the Bank of Japan (BoJ) vowed to buy more Japanese government bonds (JGB) on Wednesday after changing its yield curve control (YCC) today to broaden the maturity spectrum beyond the previous 10-year JGBs targeted. The USD/JPY pair rose 0.17% to 134.63. As the yen fell to a 24-year low against the dollar, Japan’s Finance Minister Shunichi Suzuki said Tuesday the government would coordinate moves with the BoJ. The yen is the worst-performing major this year, down around 14% as the BoJ keeps interest rates low while US yields rise on bets on continued Fed hikes.

The DXY has eclipsed last month’s high and made a fresh 20-year high today. Next all time high that might offer resistance is 109.77 from September 2002. Momentum appears to be bullish with positive gradients in the short, medium and long term. The market is over-invested in the notion that inflation has peaked and the policy challenge is that the Fed has no idea how much monetary tightening needs to be and will only realize long after the event that she has done too much.