Fundamental Analysis Friday 20 January 2023

Author: Sifu Steve

The Dollar Index (DXY) this week has shown to be in a consolidation state and not much one-sided movement. It did manage to break below 101.000 but have since steadily rally back up to slightly above 102.000. Long term momentum for DXY is also still bearish and there is a possibility 101.000 will be retested again in the coming week. More hawkishness on interest rate hikes came to surface as Breaking Market News tweeted “Fed’s Williams: The labour market has been more resilient than predicted” and by LifeSquawk “Fed’s Williams: Won’t Prejudge Size Of Rate Rise At Upcoming Meeting – Fed Still Has A Ways To Go On Rate Rises”. You can see where they are going with this! On the side, Janet Yellen from US Treasury wrote a letter to Congress to execute special measures (which is a debt issuance suspension period) to avoid defaulting on payments as debt ceiling was tapped on Thursday. The ruckus continues and as reported by Bloomberg, “Treasury Taps Retirement Funds to Avoid Breaching US Debt Limit”. There is an old saying on what’s brewing right here, “digging a new hole, to cover the old hole”. Seems like the USD’s bearishness will maintain as of now.

Over at Great Britain, this week was a fairly bullish for Pound Sterling and possibly due to its strong employment data. Job market and wages shown resilience and despite high inflation and living cost that UK is experiencing right now. This is definitely an obstacle to tame inflation and the question to ask is whether or not Bank of England will take similar steps as US Federal Reserve in their inflation battle.

Moving to the Euro Zone and in comparison, to GBP, price action was sideways this week. Another bloc nation that has been hit badly by high inflation, Euro currency will come under tremendous pressure if inflation were to remain high, or worse increases. ECB’s President Lagarde describes Euro’s inflation as “way too high” and is staying composed to strike inflation down to their targeted 2%, as reported by Again, in a much similar conundrum as UK, rate hikes perhaps?

China’s re-opening very likely brings some relief to global markets. As the world’s manufacturer, this could possibly inject positivity to supply chain recovery and producer cost controls. China’s retail sales demonstrated shown recovery of high volatility since its long awaited re-opening.