The US dollar continues to rise in relation to other major currencies during early Tuesday trading. The gain versus the euro are particularly noticeable, with the greenback up by almost 1.5% since the beginning of Friday’s session. The combination of vaccine success, fiscal stimulus and dovish monetary policies promises an explosion in economic activity in the aftermath of the pandemic. This has seen investors start pricing-in the prospect of inflation, driving the current bond sell-off and corresponding rise in yields. One of the reasons for the difference between the performance of the euro and the dollar lies in the respective central banks’ tolerance of the ongoing bond rout; while ECB senior figures stated that, if necessary, the bank will intervene in the bond market to prevent an untimely rise in borrowing costs, the Federal Reserve seems to, so far, have little to say on the matter, creating scope for further dollar gains.
Gold remains in the danger zone with a long row of decreasing lows certifying the temporary low investor interest in bullion. The strength of the greenback is increasing the bearish pressure on gold, an asset traditionally negatively correlated with the Dollar Index. Moreover, the rebound of yields seen last week has been detrimental for gold as some investors moved part of their portfolio back to bonds. The scenario remains weak with the support level at $1,700 crucial to avoiding further sharp declines.
Shares edged higher shortly after the opening bell on Tuesday in Europe, despite a bearish trading session on both Asian stocks and US futures amid lingering uncertainties. Despite the recent volatile price actions, most markets around the world keep on trading inside their consolidation pattern, correcting the long-term bullish trend. This reduced risk appetite from investors is partly due to the global recovery having already been largely priced in since the beginning of the pandemic, thanks to the extremely dovish environment provided by nations and central banks. Now, with the prospect of rising inflation, many traders have started to think it is time to take some profits. However, while the current macro and technical context explain the current market consolidation, it shouldn’t reverse the long-term trend as the key bullish market driver of a swift return to a “back-to-normal” situation remains alive and well. In the very short-term though, the resurgence of new virus variants in the US and Brazil may dent market sentiment further.
Pierre Veyret– Technical analyst, ActivTrades
Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.