The markets continue to push USD higher with the index now at the highest since December 2023, causing GBPUSD to trade lower and EURUSD to trade towards a key support level. We mentioned earlier this week that the technical indicators suggesting both EURUSD and GBPUSD are now looking oversold, but without a catalyst in a quiet week so far, there has been nothing so far to have stemmed the demand for USD.
* Daily move - against G10 rates at 7:30am, 28.09.23
** Indicative rates - interbank rates at 7:30am, 28.09.23
Finally we have some data today that gives us something to think about. First up is September consumer confidence figures from Europe. Recession and stagflation fears continue to brew in the background in the eurozone, and a further downbeat number would no doubt add to those fears. Germany's inflation numbers are out at 1pm which is expected to show a severe drop from 6.1% to 4.6% in September, which may well cause markets to increase bets on rate cuts in 2024 in the eurozone. EU inflation numbers are due out tomorrow.
Perhaps today's final Q2 GDP numbers from the US could take the wind of USD'ssails? One of the main reasons for USD gains has been based on growth differentials between the US, UK, and the EU. The previous estimate was 2.1% and this final reading is expected to be revised higher to 2.2% - a miss and we could see some USD profit taking and a long overdue retracement on its recent gains.
On the topic of a second wave of inflation, it's worth noting another surge in Brent Crude prices which is now trading at US$97.33 per barrel – the highest level in more than a year. This will keep alive the idea that interest rates will have to stay higher for longer.
The theme continues with USD continuing to make new gains almost every day. Yields on 10-year treasuries are now at 4.60%, with markets wagering that interest rates will remain higher for longer and the currency has been getting support on the back of growth differentials. However, it is worth noting that technical indicator, RSI (relative strength indicator) is suggesting that the USD is now overbought. The RSI is a momentum oscillator that measures the speed and change of price movements, and with the USD index up 7% in the space of two months, the indicator could well be signalling a retracement could be on the cards.
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