USDX Trading Higher, Will Central Banks Exert Themselves?
The USDX—which tracks a basket of six major currencies, is firmer, adding to their last week's gains. Amid this are expectations that most central banks may begin announcing plans of tapering their Q.E. The Forex market could be taking cues from the generally higher bond markets. Although the USD retraced, FED officials' comments suggest the central bank is tolerant of higher treasury yields, contrary to other central banks.
The USD bulls are back. Last week's closes confirmed the double-bar reversal pattern of the USDX, pointing to a potential inflection point and reversal of losses. Rising bond yields back the greenback. Jerome Powell is still pushing back on claims that the bank could tighten sooner than expected, saying the FED expects inflation to rise in the medium term. On the contrary, the ECB has expressed concerns about rising bond yields. Christine Lagarde now says they will not want to raise interest rates prematurely, especially when retail sales didn't meet expectations in Germany.
Impact on the USD:
Bullish. Conflicting views from the ECB and FED places the USDX at a vantage point. Since the FED is not troubled with rising bond yields, the USDX may attract more capital as investors flow to the U.S., searching for competitive bond yields.
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