USD Remains Elevated On Inflation Fears

Oct 07 21, 09:22 GMT

The USD gained against most of its counterparts yesterday according to the Dollar index, while retained a 14-month high against the EUR. The greenback was supported as worries for inflationary pressures remain high, while at the same time the frequent comments made by Fed’s policymakers about the issue and a tapering of the bank’s QE program tend to reinforce such expectations. It’s characteristic that the US bond yields remained at rather high levels also providing further support for the USD. Also yesterday, US stock markets seemed to be on the rise as worries about the US debt ceiling issue seemed to ease. On the other hand, gold prices showed little volatility yesterday. The market’s attention increasingly turns towards the release of the US employment report for September and it should be noted that the ADP employment figure released yesterday, rose more than expected, implying a tightening of the US employment market. Today we note the release of the weekly initial jobless claims figure while Cleveland Fed President Mester is scheduled to speak.

The USD index continued to be on the rise breaking the 94.10 (S1) resistance line, now turned to support. We tend to maintain a bias for a wide sideways movement for the index between the 94.60 (R1) and the 93.70 (S2) levels currently. The RSI indicator on the other hand, is above the reading of 50 implying an advantage for the bulls. Should the bulls actually take charge of the index we may see it breaking the 94.60 (R1) resistance line and aim for the 95.00 (R2) level. Should the bears take over, we may see the index breaking the 94.10 (S1) resistance line and take aim or even breech the 93.70 (S2) level.

Natural Gas corrects lower

The price for natural gas has corrected lower yesterday after reaching a record high level not seen in years.

It should be noted that Russian President Vladimir Putin stated that Russia is ready to help stabilize the global energy markets. The statements caused a correction of Dutch and UK natural gas prices, yet the market seems to remain rather volatile and uncertain. However, a substantial increase of Russian exports of natural gas to Europe may entail a quick certification of Nord Stream 2, which was halted by the European courts and some European states may be unwilling to allow. Besides Gas also WTI prices seem to have started to retreat probably also affected by another surprise substantial build up of the US oil inventories as shown by the EIA weekly figure yesterday. We tend to maintain our worries for the energy market and expect fundamentals to play a key role in its price configuration.

The price of natural gas dropped yesterday after reaching a multi-year high and landed just above the 5.670 (S1) support line. Given that the commodity’s price, in tis downward movement also broke the upward trendline guiding it since the 23rd of September, we switch our bullish outlook in favour of a bias for a sideways movement, at least initially. Please note though that some bearish tendencies could be present, given that the RSI indicator below our 4-hour chart has dropped below the reading of 50. Should a selling interest be displayed by the market for the commodity, we may see its price breaking the 5.670 (S1) support line and take aim for the 5.200 (S2) level. Should buyers take charge of the commodity’s direction, we may see its price aiming if not breaching the 6.320 (R1) resistance line in an effort for a new multi-year high.

Today’s events and expectations

Today in the European session, we get UK’s Halifax House prices for September and Germany’s industrial output for August. In the American session we note the weekly initial jobless claims figure, while on the monetary front we note the planned speeches of ECB’s Lane and Cleveland Fed President Mester. During tomorrow’s Asian session we get Japan’s current account balance for August, and China’s Caixin Services PMI for September, while RBA’s Financial stability review is to be released.

USD Index H4 Chart